Polymer markets set to brace for higher freight rates
What is the sulfur cap?
The International Maritime Organization (IMO) has mandated that, as of January 2020, all ships have to switch to using fuel with 0.5% sulfur from 3.5% sulfur fuel being used currently to reduce the environmental impact of emissions.
Ships can comply with the regulation by installing scrubbers which will reduce the sulfur content of the fuel. The cost of installing scrubbers has been estimated at $3-5 million per ship by experts, in addition to time taken out for retrofitting.
Alternatively, they can opt to use low sulfur fuel, which is much more expensive than the 3.5% sulfur fuel currently being used.
Freight costs will rise
Both options will result in higher freight costs in the upcoming year.
“Freight charges will increase roughly around $10-20 per ton or $150-200 per container next year due to the new regulation. US companies say that they will increase the shipping fee starting from January 1,” a regional trader reported.
Players at odds: Will higher freights be reflected on polymer prices?
Polymer players in Asia, meanwhile, are divided on whether the additional costs will be passed on to customers or not.
Two major PP and PE traders in Singapore commented on the sulfur regulation, saying, “Higher freight/transportation rates would normally not be taken into consideration when pricing of polymer products is determined. But yes, freight rates will definitely be higher next year.”
“Even if polymer prices rise next year, higher freight costs will not be the main reason behind it,” another seller in Asia added.
On the other side of the coin, some players across the region think that sellers might raise their offers slightly by pointing to increasing shipping costs.
A regional trader believes CIF prices may increase by $10-20/ton as a result.
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