Red Sea attacks start to impact commodity prices

January 19, 2024

2 mins read

 

The US and the UK are engaged in military action against Houthi rebels in Yemen that commenced with a series of airstrikes on 11th January. The airstrikes were in response to Houthi attacks on commercial shipping vessels in the Red Sea. The escalating tensions have resulted in many major shipping and commodity firms, including Maersk and Shell, avoiding the key shipping route. Consequently, the global movement of goods has been negatively impacted, with market sources stating that imminent price rises are likely across many commodities in the next few months.

The volatility in the freight market appears to have subsided and some market sources say that prices are unlikely to rise again further, as they believe that the market has adapted to the new challenges. One trader in the Middle East said that Asia-Rotterdam freight rates slowed down to 6% week-on-week and believes that speculation in the market has run out of steam. However, another source told Mintec that container availability is nearly as scarce as during the COVID pandemic, with 20ft containers from Southeast Asia to Rotterdam reportedly being offered at $5,000-6,000, which had typically been offered between $1,000 and $1,500. 

The metals market has been minimally affected by the rise in ocean freight prices, due to the low share of freight costs in the price of metal products. Raw materials, where shipping costs have a higher share, have so far been more sensitive and Asian offers rose on the back of higher freight costs in January, although at the same time, demand has been weak in the EU, and there has been high availability of material from other sources. Sources in the Middle East stated that shipments of industrial materials, like silica sand, have slowed down significantly, although vessels are still sailing.

Delivery time is perhaps the most salient factor, with the time taken for goods to be shipped from Asia to Europe increasing. Some buyers are sourcing outside of Asia, due to prolonged lead times and inaccurate delivery schedules. Conversely, buyers who are unable to source outside of Asia are reportedly increasing orders from Asian suppliers to prevent supply chain interruptions.

The situation in the Red Sea is also starting to impact the shipment of vegetable oils. Market sources reported to Mintec that shipments have been delayed by up to three to five weeks, with players in India increasing bids for Russian sunflower oil by around $20/mt, showing that the escalating geopolitical tensions are having a genuine price impact. In the dairy markets, players have commented that the situation has made it challenging for producers in New Zealand to compete for North African or Middle Eastern tenders, with South American players reportedly benefiting.

Market sources in the seafood industry have also reported that the freight costs for seafood products from Asia have increased by up to 400% with shipping delays of 10 to 20 days, which is supporting prices. However, it is worth bearing in mind that January is usually a quiet month for seafood trade in Europe due to relatively subdued demand. The recent and ongoing military interactions in the Red Sea are starting to apply upward pressure to a variety of commodity prices.

The situation remains uncertain and, given the wide array of state and non-state actors in the region, any continued or further escalation will likely add even more volatility to commodity prices. 

Mintec will provide updates as they become available, and further insights can be explored on Mintec Analytics, where you’ll find real-time price tracking, expert commentary, and customized alerts. Book a demo today to unlock the actionable intelligence you need to stay ahead of the curve.

Topics: Commodities
Mintec Team
Mintec Team

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