Wednesday, February 11, 2009
Michelle Wiese Bockmann - Wednesday 11 February 2009
ArcelorMittal, one of the most prominent defaulters of dry bulk shipping contracts, has forecast a second-quarter recovery in the steel industry, citing recent iron ore restocking that has seen some freight rates double in the last week.
The world’s largest steel producer “suspended” an undisclosed number of cost and freight contracts with shipowners in November as it revealed a 34% production cutback for 2009.
But yesteday chairman Lakshmi Mittal said January and February was “the bottom of the market”, and he was optimistic for prospects in the second half of 2009.
“We believe things will start getting better from the second quarter and have a much deeper and positive impact from the second half of this year,” he told a media conference yesterday.
This reflected muted optimism in the dry bulk sector, as iron ore restocking during January raised demand for bullk carriers and fuelled a major recovery in freight rates. Capesize vessel spot rates lost more than 95% of their value in the last four months of 2008 as Arcelor Mittal and other Asia steel makers cancelled shipping contracts.
But the revival in iron ore shipments saw the Baltic Dry Index double in February to hit a four-month high yesterday reaching 2,055 points, compared to its low of 663 in early December.
Steel production underpins demand for about half of the world’s bulk carrier fleet, Arcelor Mittal’s said its fourth quarter steel shipments plunged by a third to 17.1m tonnes in the last quarter of 2008, compared to the previous quarter.
Among shipowners affected by fourth quarter contract cancellations included Western Bulk Carriers, Samy Ofer’s Zodiac Maritime Agencies, SwissMarine Services, and Louis Dreyfus.
All filed claims against ArcelorMittal in federal US courts, using so-called Rule B attachments as they sought to freeze assets against money allegedly owed. Zodiac Maritime agencies claimed contractual breaches worth $100m.
About $700m of $2.5bn worth of writedowns in 2008 were related to the renegotiation or losses related to raw material supply contracts, Arcelor Mittal revealed yesterday.
However a London-based spokesman for the steel giant would not outline further details about the impact of raw material delivery suspensions on its shipping contracts. Some are being renegotiated, he said.
Arcelor Mittal forecast its steel production would fall by 7%-15% in 2009. It would take a further two and a half years before production at its steel plants reached the same levels before the global financial collapse in October, Mr Mittal said.
“What we are saying is that in November and December we saw continuing deterioration in the market but in January I think this is the worst or the bottom of the situation. Now we believe there will be a gradual improvement that will take until 2010, maybe 2011.”
There was improved demand from China as steel mills reopened from December shutdowns, and increased steel production in emerging markets India and Russia, Arcelor MIttal said.
Steel makers were replenishing stock, while the results of government stimulus plans to kickstart economies in China were soon to be felt, Arcelor Mittal said.