Ukraine seeks to expand corridor deal to metals, could slow grains pace

The Ukrainian government has said it wants to expand the grain deal agreement, signed between Russia, Ukraine, Turkey and the United Nations, and add metal products to the list of goods that are allowed to be exported from the country’s Black Sea ports.

Building on the success of the existing corridor, which has seen millions of tonnes of corn, wheat, sunflower and other agricultural products being shipped, adding metal exports would be another major boost to the country’s economy which has been suffering the effects of a devastating war for ten months.

“We will focus on building more storage for agricultural goods, but what we need to do from a strategic point of view is to open sea ports. It’s not just about agriculture, it’s about steel,” Economy Minister Yuliia Svyrydenko said in an interview given to Bloomberg during the international forum held in the Swiss resort of Davos.

The metal industry used to be among the key strategic contributors to the Ukrainian economy, but it has been hit hard following the Russian invasion of the country, as the biggest producing facilities have been partly destroyed or occupied by Russian forces.

Alongside that, metal products, just like grains, were mainly been exported through the Black Sea ports and as such, since the start of the war, the flow has switched to railways, trucks, and small ports consequently making the logistics markedly more expensive.

Thus allowing the metals to be shipped from the Great Odesa ports – typically the three ports of Pivdennyi, Odesa and Chornomorsk – potentially can help minimize the logistic costs and increase the flow, generating bigger margins for the country.

However, the suggestion has been met with a lukewarm response from the grain trade, who fear he expansion of the corridor to include metals could bring challenges.

Grain trade representatives have said that – for now – they do not see how it can be done as it is harder to argue that metals exports are crucial to the health and wellbeing of the world population in the same way that grains have been.

Alongside that, any agreement regarding changes to the grain deal will have to be discussed with all the parties involved, and therefore with Russia as well – a major competitor to Ukraine in the industry and a request that is unlikely to be met with much enthusiasm.

“It sounds like one of the wish lists, such that is unlikely to be realized. It is easier to put pressure on the fact that we are saving the world from hunger, but you can’t say that with metals,” one local source said, capturing the mood of a range of opinions from among the sources Agricensus spoke to.

Russia has mounted a steady campaign against the export corridor, complaining about its operation trying to manipulate world opinion by arguing that the corridor is mostly sending Ukrainian grain to European countries, rather than the developing world that needs access to reliable, cheap food supplies.

Another potential challenge could also be fears of exacerbating a bottleneck for ships exiting the Black Sea, with every vessel using the grain corridor required to be inspected twice at Istanbul – once on the way in and again on the way out.

With Ukrainian exports through Black Sea ports reaching 4 million mt per month as its best since the corridor opened, and with inspections causing delays at Istanbul since October as only three or four vessels have been inspected per day.

Any increase in vessels is likely to need an increase in either the number of teams inspecting the vessels, or the 4 million mt potential maximum capacity will have to be divided between agricultural and metal products, thus crimping the potential for grain exports.

“Without going much into details, it will worsen the grain flow as the corridor is a bottleneck,” one trader said.

“If there was two incoming inspections per day, then the metal will squeeze the grain,” a second local source said.

That comes even with metal exports facing a significant reduction, with around 5 million mt exported by rail during January-October 2022 compared to 13 million mt a year ago including the volume moved to ports by rail for further export, according to Julia Bolotova, EU steel market reporter for Fastmarkets MB.

But even that amount means an additional 300,000-500,000 mt per month could be taken from grain’s share of the current monthly flow – potentially a 12% reduction.

It could also bring higher competition for rail transport options delivering to the country’s ports, but alleviate pressure on rail connections with the EU.

At the same time, there could be scope for metals to take more of a share from grains as the current pace of grain exports has been big enough to potentially clear out all the country’s stocks before the new marketing year comes in.

As such, in general there could be space for additional volumes to supplement any slowdown in grains and keep the ports busy.

“It is enough for us to have even less than 3 million mt per month within the corridor to export all potential [stocks] we have,” one local source said.

Tags: Ukraine, export, grain, grain corridor