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Friday, May 22, 2009

Chinese Steelmakers May Stem Ore-Shipping Demand, Analyst Says

Friday, 22 May 2009

China's steelmakers may curtail imports of iron ore by sea, causing the cost of shipping the raw material and other commodities to plunge in coming months, consulting firm Nena A/S said. “There's a possibility for the market to collapse,” Juizhou Wang, a markets analyst at Oslo-based Nena, said by phone today. “We are negative to the market.”
The Baltic Dry Index, an overall measure of shipping costs, dropped a record 92 percent last year as economies slowed and the fleet of ships expanded. It's more than doubled this year after China recorded three consecutive months of record iron-ore imports and the fleet shrank by 1 percent. The index advanced 21 points, or 0.8 percent, to 2,665 points today, according to the London-based Baltic Exchange.
Iron-ore imports may slow in coming months as Chinese steelmakers negotiate the raw material's price with producers including BHP Billiton Ltd., Rio Tinto Group and Cia. Vale do Rio Doce, Wang said. Iron ore creates the single largest source of demand for ships that carry dry-bulk commodities, and coal generates the second-biggest.
Nena predicted May 6 that the cost of hiring the capesize ships most commonly used to transport iron ore would rise, Wang said. Rental rates have since rallied 37 percent. Nena forecast a collapse in hire charges for the vessels in the middle of August last year, when rates stood at $140,000 a day. They dropped as low as $2,316 a day in December.
Panamaxes, Handysizes
Rental rates climbed today for capesizes, which normally haul about 175,000 metric tons of coal or iron ore. They declined for panamax vessels that are half the size, and advanced for smaller supramax and handysize ships.
Average capesize rentals added 3.9 percent to $37,513 a day, and panamaxes lost 2.6 percent to $19,707 a day. Supramaxes added 1 percent to $19,380 a day, while handysizes climbed 1.4 percent to $12,256 a day.
Forward freight agreements, contracts traders use to bet on or hedge future shipping costs, were little changed. FFAs for capesizes traded at $27,000 a day for the third quarter as of 3 p.m. in London, according to data from SSY Futures Ltd., a unit of the world's second-largest shipbroker. Panamax FFAs traded at around $14,125 a day.
Source: Bloomberg