The Red Sea Crisis Boosts Global Shipping Costs and Has Limited Impact on China’s Steel Exports

Since November 19th, Yemeni militants have frequently attacked commercial ships associated with Israel in the Red Sea and nearby waters, raising concerns in the market about the safety of the Suez Canal Red Sea route. Previous shipping companies have ordered their cargo ships to avoid this route and instead detour around the Cape of Good Hope in southwestern Africa.

In the short term, the current Red Sea crisis will lead to increased shipping costs, longer shipping days, and delayed delivery times for container ships; The transportation of steel is mainly carried out by dry bulk cargo ships, which are less affected JAC270D steel.

As early as November to early December, the Baltic Dry Index (BDI) showed signs of continuous upward movement. Industry insiders have reported that this round of increase is mainly due to the EU's carbon tax on shipping companies starting in January 2024, which will increase shipping surcharges by about $4 per ton. To save delivery costs, shippers tend to concentrate on shipping at the end of the year. In addition, the three major iron mines also have a high demand for short-term concentrated shipments. At the same time, the situation of its alternative route, the Panama Canal, is not optimistic. The route has been severely congested due to long-term drought, and the average waiting time for ships to pass has been extended from 4.3 days in early November to 11.7 days in December, causing greater pressure on the global shipping industry. In mid December, due to the decline in the Capesize Freight Index, the Baltic Dry Bulk Index continued to decline, but remained at a high level compared to the same period last year, bringing some pressure to steel exports. On December 15th, the Baltic Dry Index was 2219, a 3.02% decrease on a daily basis and a 43.35% increase year-on-year JAC270D steel.

According to feedback from an exporter in East China, the Red Sea crisis has had little impact on offshore exports; In terms of Sino Ocean, China's quotation for European markets such as Türkiye has not changed much, and the market has a strong wait-and-see atmosphere. Another East China exporter has reported a $10-15/ton increase in steel freight rates to European main ports. However, according to industry insiders, this round of increase is mainly driven by the aforementioned factors and has little to do with the Red Sea crisis JAC270D steel.