Industrial mineral markets are gearing up for
a major shift in logistics because new regulations on sulfur
emissions will restrict vessel availability and supplies of
Freight costs are a major driver of prices of metals and
minerals, particularly bulkier materials such as barite, soda
ash, graphite and iron ore, where freight constitutes a bigger
portion of the total per-tonne value.
But market sources tell Fastmarkets that these disruptions
are being balanced by an easing in freight prices due to other
factors, including vessel availability.
New rules from the IMO will come into force at the start of
2020 that will limit the amount of sulfur oxide ships can
produce in their emissions.
Sulfur emissions are already controlled within designated
emissions control areas, but the new regulations will affect
ships even in international waters for the whole period of
Ships will either be required to burn fuel with a sulfur
content of below 0.5% or be fitted with "scrubbers" that clean
sulfur from the exhaust before it is released into the
These scrubbers can either be integral to the vessel or be
retrofitted to existing vessels. The cost of fitting scrubbers
is likely to add up to several million dollars for most
vessels, market sources say.
For larger ships, fitting scrubbers is still likely to be
cheaper than burning expensive low-sulfur oil throughout a
ship’s lifetime, especially since the new
regulations are expected to push up demand - and prices - for
the higher-grade fuel.
And anecdotal evidence suggests large ships are taking this
option. In November 2019, Morgan Stanley said "in the shipping
conference calls, companies continued to report delays in
scrubber installations as ship yards get busier".
A month earlier in October Emanuele Lauro, chairman of
tanker shipping company Scorpio Tankers, told investors that
freight prices had already risen because vessels were
dry-docked to fit scrubbers.
"These front haul voyages and a significant number of larger
dry cargo vessels fitting scrubbers in Asia constrained the
supply side and pushed rates to recent highs," Lauro
But the smaller handysize vessels - of below 40,000 tonnes -
consume less fuel, making fitting scrubbers less economical.
This is particularly true of older ships, which have fewer
years’ work in them before being
Most industrial mineral bulk shipments, such as alumina,
graphite, and soda ash, are carried in handysize
These ship owners have "overwhelmingly decided to pay the
premium for low-sulfur fuel," according to one shipping broker
that said only 8% of cargo ships had been retrofitted with
scrubbers ahead of the new regulations coming into force at the
start of 2020.
It is unclear whether this figure included ships that had
scrubbers on order and were had yet to be fitted.
Ship owners who have not fitted their vessels with scrubbers
will have to pay the premium that the low-sulfur fuel currently
The 0.5% fuel may cost close to twice the price of 3.5%
sulfur-content fuel which most ships had used before this
legislation, one shipping fuel broker told Fastmarkets.
The price for the commonly consumed marine fuel with 3.5%
sulfur, Intermediate Fuel Oil (IFO) 380, in Singapore is
$344.50 per tonne. This compares with $613 per tonne for
low-sulfur marine fuel, Very Low Sulfur Fuel Oil (VLSFO), also
in the Singapore bunker.
Both prices were taken from news and intelligence website
for the marine fuels industry Ship & Bunker and relate to
trading taking place on December 13, 2019.
Between July 4, 2019, when Ship & Bunker started
publishing the marine fuel prices, and December 13, VLSFO in
Singapore has traded between $520 and $613 per tonne.
Comparatively, IFO 380 in Singapore has traded between $293 and
$593.50 per tonne over the same period.
Low freight costs over the last decade have opened up long
distance trade routes and should logistics costs see a
significant rise it could shut off long distance routes for
high-volume and low value commodities.
There are also concerns that oil refiners may not have
responded to the impending IMO regulation by producing more
0.5% sulfur fuel to cover the boom in demand from the start of
"Rotterdam and Singapore will have enough fuel but if it is
a small shipping destination then they may not have enough. I
find it hard to believe that every port in the world will have
enough of the low sulfur fuel," the shipping broker
"The increase in costs is massive but not being able to find
the fuel would be much worse," he added.
Freight costs to rise
A shipper told Fastmarkets that vessels are in the process of
transitioning to low sulfur fuel.
"Ships will be running at full in the first two weeks of
December to burn off their old bunker fuel," he said. "By
December 15, ships start running on fuel under the new
And prices are already increasing due to the new
regulations, he added.
"Because the freight rates have been falling, they have
absorbed the influence of the increase in [fuel] costs so they
have been hidden," he said.
"[But] the [freight] market has now stabilized."
The Baltic Dry Index, which is used to asses global freight
prices, stands at 1,315 as of December 17, down from over 2,500
in September when freight prices hit a multi-year high driven
in part by vessel shortage caused by other regulations,
including IMO restrictions on the use of unfiltered ballast
A logistics specialist at a commodity trader believes most
of the freight price increase has already been priced in and
there would be no jump in prices at the start of
"I expect a firmer end to the year but no strong recovery,"
he said. "This will not be enough impetus to bulk freight rates
off the bottom."
Market participants reported freight rates between South
Africa and China in December at $26 a tonne.
"Shipping companies are already implementing higher prices -
we have seen an additional $5 or $6 [per tonne] in place," a
graphite market participant said.