Thai, Vietnamese and Pakistani exporters drop offers to compete with India
Smallest gap between four main origins since April 2018
Slowdown in demand, crop pressure, freight problems weighing on Asian markets
On July 15 – for the first time since December 19, 2019 – S&P Global Platts’ appraisals of 5% off-white rice from Thailand, India, Pakistan and Vietnam were all valued at less than $ 400 / t FOB.
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The turnaround was brutal. Exactly a month ago, none of these valuations were less than $ 400 / mt FOB. As late as the end of March, Thai and Vietnamese 5% off-white rice was priced by Platts above $ 500 / t FOB.
Each country has its own specific context, but the recent correction is not unusual in anything other than its magnitude. Each year, Asian white rice prices typically experience a downward correction around June-August. In Pakistan, exporters are looking to liquidate pre-harvest stocks from the end of August. Thailand and Vietnam are harvesting off-season crops at this point of the year, while Indian farmers have also just completed their off-season rabi crop harvest.
However, with the return to FOB white rice prices below $ 400 / mt, the market appears to have turned a corner after the price spikes of the past year and a half, which were mainly caused by the fallout from COVID- 19. However, in addition to the usual seasonality of these price drops, one of the main reasons for the recent price collapse stems from the fallout from COVID-19 – shipping difficulties, both for the breakbulk and the container. .
“Buyers are disappearing”
A recent common remark from Asian exporters has been that many buyers are able to justify the FOB costs, but not the freight costs. An Indian exporter told Platts that “the demand is there, but due to container issues it is difficult to book new business.” A Thailand-based source confirmed that demand exists – especially as a result of falling FOB prices – “but buyers disappear when you quote freight rates.”
A European broker pointed out on July 16 that if they were to pay $ 320 / t FOB FCL for high quality Myanmar broken rice, the freight to northern Europe would average around $ 9,000. / EVP. Based on 25 mt / TEU, this equates to a freight rate of $ 360 / mt, which is 13% more than the cost of the product itself.
Myanmar’s political issues surrounding the coup notwithstanding, the country is not alone. A Dubai-based trader whose company has strong ties to the shipping industry said even for them it was difficult to get hold of a ship in bulk due to high demand and low supply.
A trader based in Europe also recently claimed that it was “impossible to find” containers in India. A second trader based in Europe said that “it is difficult [to get containers in Thailand], but not impossible. If you pay the right price. “
Even if the containers are sourced, there is also no guarantee that buyers will be able to hang on to them. A large European buyer said the current freight situation was “dire”, mainly because shipping contracts were often not honored and last-minute changes were not uncommon. A Pakistani exporter confirmed this situation, saying it was “ridiculous … even at the last minute, they [shipping companies] cancel the reservation “, creating additional costs for the counterparties.
In this context, the Pakistani exporter added that “everyone is silent now”. Rolling the dice, many buyers bet on improving the freight market and postponing orders, relying more on existing stocks and waiting for domestic rice prices to catch up with recent increases in the global freight market.
This is corroborated by recent export figures, with Pakistan’s Bureau of Statistics estimating that May’s exports were down 48% year on year. Vietnamese exports in the first half of 2021 were also down 14% year on year, according to Vietnam Customs data, while 2021 Thai exports as of July 11 (excluding Hom Mali flavored rice) were down 20% year on year. , according to the US Department of Agriculture. .
The only exception has been India, which is generally priced much lower than its Asian competitors on an FOB basis. India’s rice exports totaled 2.02 million tonnes in April, more than double their level a year earlier, according to the Trade Intelligence and Statistics Branch. However, as other countries rush to compete with India, it is extremely likely that the pace of Indian exports will weaken, as Thai, Vietnamese and Pakistani exporters begin to receive volume demand again.
At this point, the FOB price of white rice is so similar among Asian origins that freight rates and availability become much more important in determining whether or not a deal is made. Unless an Asian origin drops prices further to claim India’s position in recent months, this situation is unlikely to change in the months to come.