Red Sea Shipping Threats Disrupt Global Plastics Markets -- OPIS
January 05 2024 - 12:05PM
Dow Jones News
U.S. polyethylene (PE) exports will likely get a boost in
January, as recent threats to Red Sea shipping lanes have driven up
freight costs for suppliers in the Mideast and Asia, resin traders
said this week.
The plastic pellets used to make a vast array of consumer goods
are globally traded commodities that traverse the seas in steel
shipping containers, and companies that move those containers are
steering clear of the Red Sea following recent attacks on
vessels.
A.P. Moller-Maersk, the world's largest container shipping
company, said the situation in the Red Sea and Gulf of Aden remains
highly volatile, according to a Friday update on the company's
website.
"All available intelligence at hand confirms that the security
risk continues to be at a significantly elevated level," Maersk
said. "We have therefore decided that all Maersk vessels due to
transit the Red Sea/Gulf of Aden will be diverted south around the
Cape of Good Hope for the foreseeable future."
The diversions have caused freight costs to skyrocket on
affected routes, and trade flows of price-sensitive commodities
like PE are responding.
"The Red Sea issues are creating some opportunities for U.S.
product," a polyolefins trader said this week. Overall demand is
relatively weak, with low growth seen in the near term, but
geopolitical issues such as the rerouted shipping lanes appeared to
be lending some strength to PE markets, the source said.
Market participants said that suppliers in the Mideast and Asia
will have greater difficulty selling to markets such as Latin
America, Europe and North Africa while the Red Sea crisis
continues, with Maersk said to be asking for a $3000/container war
risk surcharge.
Prices in Europe and West Coast Africa markets will go up
because of the lack of access to Asian product, and North American
producers will have more options to sell outside of Asia and Latin
America, a U.S. trader predicted.
The trader noted that freight costs had nearly tripled on some
routes, from around $2500/container to nearly $8000/container.
Resin buying activity in Latin America was picking up after the
holidays, but activity was still relatively light. "People are
coming back, and there is an anxiousness for all these things going
on," another PE trader said.
January high density polyethylene (HDPE) blow molding grade for
export was assessed 2 cents higher at 36cts/lb railcar FOB Houston
on Thursday, the first uptick in many weeks for that market.
U.S. PE grades were generally being offered for January shipment
at prices 1-4cts/lb higher than December, traders said, although it
was still unclear how much of an increase the market would
absorb.
More broadly, an extended closure of the Red Sea could reduce
global shipping capacity by 20% and generate inflationary pressures
for the global economy, according to a January 4 research briefing
by Oxford Economics.
"We assume the disruption to shipping caused by maritime attacks
on commercial vessels in the Red Sea will be relatively short-lived
and the recent spike in sea freight prices will reverse," the
briefing said.
If the closure persists for several months, Oxford Economics
estimated that shipping costs would hold at around twice the level
of mid-December and contribute 0.7 percentage points to annual CPI
inflation rates by the end of 2024.
This content was created by Oil Price Information Service, which
is operated by Dow Jones & Co. OPIS is run independently from
Dow Jones Newswires and The Wall Street Journal.
--Reporting by David Barry, dbarry@opisnet.com ; Editing by Anna
Matherne, amatherne@opisnet.com and Adam Burkin,
aburkin@opisnet.com
(END) Dow Jones Newswires
January 05, 2024 12:49 ET (17:49 GMT)
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