iron ore port hedland bhp billiton

Image courtesy BHP Billiton

(Bloomberg) — Price arbitrages that make it profitable for traders to ship coal and iron ore to China may become more important in determining ship demand than the nation’s economic growth, said RS Platou Economic Research.

Chinese imports of power-station coal expanded 30 percent last year and at a faster rate than the nation’s energy generation, the research unit of Norway’s largest shipbroker said in an e-mailed report today. Ore buying swelled 8 percent, which was also quicker than the country’s steel output growth, according to Platou. The nation’s economy grew 7.8 percent, the slowest since 1998, according to data compiled by Bloomberg.

“Expansions of industrial production capacity, together with possible arbitrage in raw materials prices might therefore be more important for Chinese commodity imports than pure GDP growth going forward,” RS Platou said.

The Asian country accounts for between 40 percent and 70 percent of global demand for metals and mined commodities, Barclays Plc said in November. Coal and iron ore account for more than 50 percent of the 4.2 billion metric tons of minerals and grains forecast to be shipped by sea in 2013, estimates Clarkson Plc, the largest shipbroker.

Shipping rates as measured by the Baltic Dry Index declined to the lowest average in 26 years in 2012, amid an oversupply of vessels and slowing global demand for commodities. The index slid for a ninth day today, declining 1.3 percent to 750, its lowest since Jan. 9, according to the London-based Baltic Exchange, which assesses freight costs.

Capesizes Slide

Average rates for Capesize vessels, which carry about 90 percent of the world’s iron ore shipped by sea, fell by 1.9 percent to $7,329 daily, exchange data show. Hire costs are falling from a nine-month high in October as the price of imported iron ore to China surpassed the average cost of the locally mined steelmaking commodity since Dec. 11, data compiled by Bloomberg show.

Hire costs for Panamax ships, the largest to transit the Panama Canal, fell 2 percent to $5,257, the lowest since Oct. 8, according to the Baltic Exchange. Supramax ships, about 25 percent smaller, slid 0.3 percent to $7,135 daily, while Handysizes, the smallest tracked by the gauge, were 1.4 percent lower at $6,707 daily.

- Michelle Wiese Bockmann, Copyright 2013 Bloomberg.

Tagged with →  
Share →
  • Barry Parker

    This makes complete sense. Very analogous to the oil products trades (especially in North Atlantic) where “storage” is not really a constraint. Arbitrages, like whether refined products are worth more in the Northeast USA compared to Europe, always adjusted for transport cost, or not, determine which way things are moving. This past week, we’ve had very strong “TC2″ (product tanker trade on MR ship) market yet GDP reportedly shrinking.

    But ultimately, however, you need some economic strength in China to make demand, and support prices, for the coal and the iron ore. Same way that you could not have demand for gasoline in Northeast USA if the economy was completely in the tank.

Sign up for the gCaptain Newsletter!

Over 32,000 people receive the gCaptain email newsletter every single day. Get the maritime and offshore industry headlines that matter sent straight to your inbox. Or LIKE us on Facebook!

We will not share your email address with anybody for any reason