Romania’s wheat export ban triggers supply chain concerns in Asia/Middle East

A ban on wheat exports by Romania to non-European Union countries has started to disrupt supply chains, triggering force majeure clauses and concerns over wheat shipments to Asia and the Middle East, and that in turn has led to a sharp rise in Black Sea wheat prices, market sources said this week.

S&P Global Platts assessed the Black Sea 12.5% protein wheat price $5.25/mt or 2.3% higher on the week at $230.50/mt FOB Black Sea Wednesday. The ban announced April 10, which aims to protect Romania’s domestic market amid a state of emergency due to the coronavirus pandemic, took effect immediately and will last at least until mid-May, according to media reports. There is, however, a lot of uncertainty regarding details of the ban, such as whether it affects contracts committed to before April 10.

Several vessels have ended up being stranded in Romanian ports as they await further clarity from the government, market sources said. “All grain vessels from Romanian ports are at a standstill for now, including a vessel of mine,” a Geneva-based trader said Wednesday. “I am still waiting on official news if the ban will be revoked for previous commitments, but according to Gafta 49 [a Grain and Free Trade contract] this situation falls under force majeure,” the trader added. Another trader said: “It is unclear whether traders can enforce the force majeure [clause] or not, I presume not, but it depends if the contract [states] optional origin and whether the vessel has been nominated, which in this case opens the door for negotiations between the counterparties.”

Southeast Asia sees supply chain disruption

The Southeast Asian market was rife with talks about possible disruptions in the flow of wheat to the region. One of those was centred around a shipment San Miguel Corporation in the Philippines is scheduled to receive in May. An SMC source on Wednesday said the seller of the cargo, Dubai-based Phoenix Group, was hit by a force majeure on wheat supplies from its Romanian supplier. But the contract between Phoenix and SMC states optional origin cargo, meaning in case of force majeure from one origin, Phoenix will have to deliver the cargo from another origin, the SMC source said.

Phoenix did not provide official comment on the force majeure. Amid this supply chain disruption, Phoenix April 8 on its Twitter account said: “We would like to put it on records and officially mention that Phoenix has not filed for bankruptcy.” This clarification follows talks in the market about the company’s financial health.

Asian, Middle East buyers’ concerns

Phoenix has at least two more vessels of optional origin wheat to be shipped in May-June to Thailand and the Philippines, according to S&P Global Platts trade data. While some Southeast Asian buyers are worried over non-fulfilment of existing trade deals amid Romania’s export ban situation, export restrictions from various Black Sea countries is also a cause for concern. “We are worried about future shipments if there are only few originations available for export,” an end-user said.”It is not that we are running low on inventory. We want to secure supply as a safety precaution and need the wheat delivered to us as soon as possible,” the buyer added.

This cautious sentiment is prevalent among Middle Eastern buyers too. Egypt, the world’s largest wheat importer, late Wednesday announced a second wheat tender this week for a similar delivery period, May 21-June 5, with the results expected to be announced late Thursday. Tuesday’s wheat tender, the first of the week, saw a lower-than-usual number of offers, with US wheat offered for the first time this marketing season. Egypt’s tenders have taken the market by surprise, according to several traders, as it coincides with Egypt’s harvest season. “With several months of reserves and the harvest season kicking off, It is very strange to come to the market now,” one of the traders said..

While Romania’s wheat export potential till the end of the marketing year (July-June) was estimated to be around 300,000 mt, its decision to ban non-EU grain exports comes a week after Russia’s introduction of a 7-million-mt grain export quota for the period until end-June 2020, further exacerbating importing countries fears and shoring up prices. Adding further pressure to the situation, a Ukrainian agricultural ministry official announced Wednesday the possibility of a wheat export ban if traders fail to uphold a memorandum of understanding allowing them to export a total of 20 million mt, with 18 million mt already exported since the beginning of the marketing year.

If panic buying picks up across Asia while supply and exports continue to dry out for the current season, Black Sea wheat prices will undoubtedly find upward strength, market sources said.

Authors: Takmila Shahid, Karim El Afany for S&P Global Platts

Photo source: Pixaby