Fertilizer freight rates double for Iran-China route on sanctions concerns

20 September 2018 12:09 Source:ICIS News

LONDON (ICIS)--Iranian ship brokers have doubled fertilizers freight rates for non-Iranian owned vessels sailing from Iran to China from October on the back of rising concerns about US sanctions, according to several sources on Thursday.

"Vessel owners are being opportunistic, but mainly this has happened because of the [US President Donald] Trump impact and due to the upcoming sanctions," said an international trader.

The daily hire rate for vessels, according to which freight is calculated, has been raised to $30,000/day ,from $14,000/day, according to sources.

Traders said the increase has come overnight, while ship brokers said daily hire rates have increased gradually over the last four to six weeks.

"The increase hasn’t come in one day. All the traders in Iran are actually standing up to ship owners this week, which even pushed down prices a bit," said a ship broker.

"Last week was unfeasibly high. For forward dates such as October, prices would be higher."

Iranian urea is often exported to China, from where it is re-exported to several regions such as south Asia and Africa to avoid US sanctions.

"There are difficult times ahead," said a trader who deals with Iranian material.

Another added: "It’s getting tough to do business. Even for India. Physically and financially."

Previous estimates for freight for a 50,000-tonne vessel from Iran to China were around $22-28/tonne.

It is not clear how freight rates for Iranian-owned vessels will be impacted, given there is no clarity on their vessel availability.

There is also talk that payments from India to Iranian suppliers under the recent MMTC Limited urea tender have been slow, amid speculation that only two of five suppliers have been paid so far.

MMTC purchased 662,000 tonnes of urea from Iran under the tender and another 50,000 tonnes of re-export material from China.

However, not everyone is expecting trading between Iran and India to stop because of the US sanctions.

“We will go back to the time of the old sanctions when there were only a few traders dealing in Iran as it was complicated. I do not believe that India will completely stop dealing with Iran,” said another international trader.

“Now they [Indians] are playing slow because they were taken by surprise by the US. They will figure out a way to do it [Iranian business].”

China too is expected to continue its trades with Iran.

A trader based in that country said that the market is waiting for the 4 November deadline the US has set to establish sanctions.

"It’s going to be difficult but I don’t think China will stop trades with Iran," the trader said.

"If freights increase, government subsidies will increase too. Companies may stop business but government-to-government will continue."

The speculation surrounding Iran is expected to continue pushing up urea prices, as major buyer India will need to look at other markets for tonnes.

"These complications are as expected due to the sanctions. I think it’s getting almost impossible to find banks able to make the transactions," said an international supplier.

"[It's] bad for Iran but also for India, who has to look for alternative sourcing options."

Most market participants are waiting for November to see India’s stance once the final set of US sanctions on Iran comes into effect.

"[The] market is bullish but the impact will really appear in December, after the final deadline," said a major North African urea producer.

India imported 1.6m tonnes of urea from Iran in 2017 off its import total of 5.5m tonnes.

Pictured: Port of Chabahar, Iran
Source: Ebrahim Noroozi/AP/REX/Shutterstock

Focus article by Deepika Thapliyal

By Deepika Thapliyal