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Bulker Earnings Surge on China Infrastructure Investment

Bloomberg
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September 29, 2020

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By Firat Kayakiran (Bloomberg) –Ships that transport coal and iron ore to China are seeing a surge in earnings as the nation’s demand for commodities rises, despite concerns about a resurgence in cases of Covid-19 in many parts of the world.

Rates for Capesize ships, the largest among dry bulk carriers, have jumped by 48% within the past week, to about $23,700 a day on Monday. On Sept. 25, those earnings hit a two-month high, Baltic Exchange data show. Cargo flows have increased from Australia and Brazil, the world’s two largest iron ore producers.

“Iron ore exports show no signs of easing despite rising global Covid cases as China pushes ahead with its infrastructure investments,” said Burak Cetinok, head of research at Arrow Shipping Group Ltd. in London.

Capesize earnings are on the rise as China demands more iron ore
To help offset the economic impact of the pandemic, China’s government boosted infrastructure spending. That’s translated into robust demand for steel, and the nation’s mills have been producing record volumes of the alloy this year. Asia’s top economy makes more than half of the world’s steel.

In addition, restocking activity ahead of the nation’s Golden Week holidays in early October has also boosted shipments, Cetinok said. Total iron ore inventories at select ports in the country rose to a six-month high as of Sept. 25, data from Shanghai SteelHome E-Commerce Co. show.

A strong amount of fixture activity from Australia and Brazil helped to fuel the spike in spots rates last week, according to Frode Morkedal, an analyst at Clarkson Securities Ltd., a unit of the world’s biggest shipbroker. “With the surge in chartering activity, vessel availability has tightened, particularly so with coking coal buying interest on the rise as well.”

Miners in Australia, the top exporter, have been shipping ore at an unprecedented pace this year to take advantage of China’s booming demand and lofty prices well above $100 a ton. Port Hedland, the main maritime gateway to the Pilbara mining heartland, set a monthly record in June.

Capesizes that take iron ore and coal to China will have earned $18,900 a day on average in the third quarter of this year, according to shipping analysts surveyed by Bloomberg. That’s about 45% more than they anticipated for the same period back in May. Fourth quarter earnings are expected to be 22% higher than the previous estimate.

Arrow’s Cetinok said he expects the Capesize market to be “firm but volatile” during the next three months due to the threat of rising coronavirus cases. “While nationwide lockdowns are unlikely, further restrictions could put pressure on the fragile demand recovery,” he said.

–With assistance from Jake Lloyd-Smith.

© 2020 Bloomberg L.P

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