Wednesday, February 25, 2009
Hong Kong: The cost of shipping commodities such as iron ore and coal tumbled the most in three months as Rio Tinto Group said it may delay deliveries from Western Australia, increasing the supply of vessels seeking cargoes, Bloomberg reported.
Rio declared a force majeure, a legal clause allowing delays if an incident happens outside of the supplier’s control, according to a letter from the company dated February 23 obtained by Bloomberg News. The decision applies to shipments on or after 7 a.m. Feb. 14, the letter said, after rail lines connecting mines to the coast flooded. Nick Cobban, a London-based Rio spokesman, said the company’s policy is not to comment on force majeures.
“It’s knocked the market for six,” Stuart Rae, co- managing director of M2M Management Ltd., the largest hedge fund group dedicated to shipping markets, said by phone. Some shipowners will be forced to send their vessels to seek cargoes in Brazil because of a lack of Australian deliveries, he said.
Hire rates for capesize vessels most commonly used to haul iron ore fell 9.8 percent yesterday to $34,284 a day, according to prices from the London-based Baltic Exchange, the biggest drop since November 26. It was also the largest contributor to a 3.6 percent decline in the Baltic Dry Index, a broader measure of commodity shipping costs, to 2,010 points.
Forward freight agreements also declined yesterday. Capesize FFA contracts for April to June lost 11 percent to $24,500 a day. The contracts for smaller panamax ships fell 3.3 percent to $12,500 a day.
The force majeure is likely to be “short term” and create “extreme volatility,” Rae said, adding he expects iron ore demand to accelerate once the situation is resolved.
Also of concern for bulk owners are the nearly full inventories of steel mills in China. A serious restocking of iron ore over the past three months looks just about complete. [25/02/09]