Rising Rhine waters ease supply for oil products, petchems, coal
Rhine water levels at key choke-point Kaub have recorded a sharp increase since the weekend, rising to 182 cm at 1200 GMT Thursday from 57 cm Monday and a mere 36 cm in the week ending Sunday, according to German waterways authority WSV.
Anything below 80 cm at Kaub is considered critical as it reduces the waterway depth, and typically premium rates are applied for levels below 140-150 cm, sources have said. Levels have not been above 80 cm at Kaub for more than two months, according to WSV data.
The German Federal Institute of Hydrology said November 29 that “for a dramatic turn of events, extensive rainfall over a period of several months would be necessary.” WSV forecast levels at Kaub to fall back to 127 cm by Monday next week.
But at least for the week ahead, the rise in water levels gives shippers a window to move larger shares of commodities up and down the river.
The ICE LSGO December/January backwardation rose to $10/mt Wednesday from $5.75/mt Friday on rising Rhine water levels and expectations of further rises, according to market participants.
The strength of the spread is a surprise to some, with one trader saying “this spread should be around $4/mt.” According to the trader, the spread should be lower because December diesel fundamentals are soft despite the inland demand pull associated with rising Rhine water levels.
“With the armada coming from the USA and the big program from Primorsk, Europe/ARA will receive a bunch of diesel this month,” the trader said.
Barge freight rates to carry a 4,000 mt cargo of clean products from Rotterdam to Karlsruhe, Germany, plunged to $45.90/mt Wednesday from $134.95/mt Friday last week as water levels improved following rainfall over the weekend on the Upper Rhine.
Since an all-time high of $134.95/mt on November 30, rates have dropped by 66%, according to S&P Global Platts data.
Similarly, barge rates from Rotterdam to Basel dropped to $50.60/mt Wednesday after experiencing an all-time high of $196.25/mt November 19.
According to a Rotterdam-based barge operator, improved barge intakes are expected up until the beginning of next week.
Another market participant said: “Right now though we are loading more cargo on a similar number of barges, looking at an intake of 2,000 mt on a 4,000 mt barge compared to 500 mt last week.”
However, the drop in rates and increased cargo volume could be short-lived as market participants expected water levels to drop again over the coming week.
Rising Rhine levels and lower barge freight boosted trading activity in the ultra-low sulfur diesel barge market in the Amsterdam-Rotterdam-Antwerp hub this week, while the impact on prices was mixed as cash differentials for ULSD barges jumped for prompt dates but weakened for the latest ones.
According to Platts data, 23 barges of ULSD traded in the Platts Market Close assessment process since the beginning of the week, compared with 10 over the three previous trading days.
“The German pull from ARA will increase” thanks to much higher Rhine water levels and much lower barge freight rates, a trader said.
Another said: “It’s going into winter after prolonged low stocks, the flat price has been weak and we are seeing the end-consumer react to the Rhine being open.”
FOB ARA ULSD barges rose to a $5/mt premium over front-month ICE low-sulfur gasoil futures Wednesday, up from a $4.75/mt premium Tuesday.
Demand for 50 ppm and 0.1% gasoil barges strengthened following the strong decline in freight rates for clean barges along the Rhine, traders said.
“You can feel [rising demand] in the gasoil market, freight rates imploded,” one trader active in the region said Wednesday, while a second one added that freight rates along the Rhine were in “free fall,” adding to rising demand from people refilling tanks.
With barges now able to supply inland demand centers, cash differentials for CIF NWE cargoes of 0.1% gasoil came under pressure as demand fell for cargoes previously transported inland via railcar and tanker truck to service inland demand centers.
“Premiums [or discounts] often reflect expectations,” the second trader said. “They react earlier than the [physical] market,” the trader added, commenting on the expectation that barges could replace some cargo volumes servicing inland demand in southwest Germany and Switzerland.
However, the trader sounded a note of caution, saying that “demand [for gasoil] from end-consumers is still rather sluggish.” Barges of 50 ppm gasoil trading in ARA were assessed at a $1.75/mt premium over frontline ICE LSGO Wednesday, down 75 cents/mt from Tuesday.
Similarly, FOB ARA 0.1% gasoil barges were assessed at a discount of $16.50/mt Wednesday, down $5.25/mt from Tuesday.
On LPG, the rising water levels have mainly benefited German consumer markets, helping ease months of distribution delays for suppliers of the domestic heating market.
That has allowed fully loaded barges to pass through Cologne and Mainz, said a source, for the first time in months.
Heating demand typically strengthens in the winter as temperatures drop.
However, this year relatively mild weather has meant that spot buying interest is still soft and covered largely by German refineries, with little additional demand pushing into ARA, and supply in that hub largely coming from storage.
“So far people seem to be fine with contract tons,” said a market source.
“It is still warm here.”
Sentiment was muted on the higher water levels this week relieving the stressful barge environment for the petrochemical market. “The question is how long it will last,” said an MTBE producer.
While a few more days of rain were expected, he said, the overall planning process for the month was more complicated and may squander the opportunity if the improved water levels turn out to be short-lived.
Delays to any uptick were likely due to the water levels slowing down supplies of feedstock methanol.
“Freight rates have dropped drastically and we are already loading at maximum capacity,” said a methanol storage manager. “The question is how long will it last? I think this situation will remain at least until the end of December, but [we] will see.”
More bullish sentiment was seen from players in the toluene market, where supplies have tightened after major producer BASF suspended TDI-grade production following a shortage of feedstock.
“Additional supply will see a big demand increase as well as soon the Southern German consumers will be back on production,” said another toluene producer.
Overall, sentiment points to the improved situation not lasting enough for any significant benefits to the petrochemical industry. With the advent of winter — despite the mild start — market expectations have pointed to a preference for LPG and fuel oil shipments as the weather grows colder.
The increased freight rates stemming from a tight market would be much easier to pass down to heating consumers as opposed to petrochemical manufacturers, a trader said.
COAL AND POWER
Coal stocks in ARA are the highest since Platts began collecting the data in 2013. Stocks at the Dutch terminals EMO Rotterdam, OBA Amsterdam and OVET Vlissingen stood at 6.94 million mt Monday.
Though water levels are recovering, sources were unsure on how long the situation would last and on the stock situation due to the backlog in transport.
On the receiving end, utilities RWE and EnBW have been warning since August about delivery issues at some of their plants.
Hard-coal plants have posted multiple outages and reductions due to coal delivery issues along the Rhine, Lippe and Neckar in October and November due to the low water levels.