As Iron Ore Prices Approach 15-Month High, Relief for Dry Bulk Shippers Still Unlikely

Rising steel prices and falling stockpiles of iron ore in China may lead to increased imports of the commodity, boosting demand for shipping, according to Morgan Stanley.

Mills in China, the largest steelmaker, are buying iron ore amid higher steel prices and improving industrial activity, Fotis Giannakoulis, a New York-based analyst at the investment bank, said in an e-mailed report today. At the same time, iron ore inventories at the country’s ports are the lowest in 2 1/2 years, he said.

“The sharp rise of iron ore prices driven by aggressive buying from mills amid higher steel prices is building up the case that demand may be improving on the back of China’s new urbanization initiatives,” Giannakoulis said in the report. “A new wave of purchasing looks possible.”

Ore with 62 percent content at the Chinese port of Tianjin, a global benchmark, jumped 33 percent since the start of December to $153.30 a dry metric ton, the highest in almost 15 months, according to The Steel Index Ltd. Port inventories plunged 24 percent since the end of August to 72.97 million tons, within 3.4 percent of a more than two-year low, according to Beijing Antaike Information Development Co., a state-backed research company.

Steel reinforcement bar futures traded in Shanghai gained 13 percent since the start of December to 4,015 yuan ($644.48) a ton. The nation’s Purchasing Managers’ Index of manufacturing expanded for a third month in December, the National Bureau of Statistics and Federation of Logistics and Purchasing said Jan. 1.

While demand for Capesize ships hauling about 160,000 tons of iron ore may rise over the next two months, as it typically does at this time of year, freight rates are suffering from a glut of vessels, Giannakoulis said. The fleet will expand 9.2 percent this year while demand to ship dry-bulk commodities advances 5.7 percent, he estimates.

– Isaac Arnsdorf, Copyright 2013 Bloomberg.