China’s internal economic stimulus has also resuscitated the dry bulk shipping industry, defying the early odds for a flat or down market this year. Iron ore imports are set to break a record of 1 billion tonnes this year, while coal imports have staged a sharp rebound.
In a speech today at the International Maritime Organisation’s biennial meeting in London, Lorentzen & Stemoco’s head of corporate development Nicolai Hansteen says China’s iron and coal demand, if they can be sustained, could mean capesize spot rates reaching $20,000 per day. Yet he cautions rates could fall just as easily if shipowners speed up voyages and defer scrapping.
“We are at the threshold of a market turning in favour of owners,” Hansteen said.
His talk at the IMO comes as the Baltic Dry Index hits 1231. The Baltic’s average capesize spot rate was assessed at $19,515 per day, the highest since August 2015.
Brazil-to-China voyages tighten supply
He estimates dry bulk demand rising 3% this year against net supply growth of 2%. The ships are busier too with utilisation currently around 87%.
The surge in rates reflects better demand for shipping iron ore from Brazil to China, a big driver of tonne-mile demand. Vale fixed two capesizes in the spot market this month for the Brazil-to-Qingdao voyage, the first spot charters for Vale since mid-September.
Vale’s re-entry into the the market “will only contribute to firming up already tighter tonnage balance,” Hansteen said.
Time charters are also at one year highs. Koch chartered the 179,000-dwt Navios Etoile (built 2010) for a one-year minimum charter at $9,500 per day. But it relet the same ship to Daiichi Chuo Kisen at $14,000 per day for an intra-Asia spot charter.
Iron, coking coal prices firmer
The uptick comes amid a rally in commodity prices and as buyers stock up ahead of further price increases. Iron ore delivered into China is currently around $72 per tonne, up from $56 per tonne a month earlier.
Total iron ore imports into China are up 9% year-to-date in October to 844 million tonnes. At the current rate of steel production, iron ore imports could top 1 billion tonnes, Hansteen says.
Other steel inputs are also seeing strong gains. Coking coal prices in Australia have risen from $200 per tonne in October to $300 per tonne this month. Total coal imports into China are up 19% year-to-date through October at 202 million tonnes.
Some of the strength is likely cyclical, driven by the typical pattern of China importing more ahead of its lunar New Year, which occurs late January. But fundamentals also appear to be improving, Hansteen said.
China’s internal economic moves are playing a major role in the demand surge. The country has enacted stimulus measures to increase housing and infrastructure spending, both of which power steel demand. At the same time, it put limits on operating days for its own coal mines in an attempt to rationalise the bloated sector.
China’s stimulus may get more urgency in light of increasing tariffs on its steel exports, Hansteen says.
Too much iron ore in ports could slow further buying. But Hansteen says current inventories of around 108 million tonnes represent one month’s of steel production, which is a “comfortable” level of supply coverage, he says.
Of course, shipowners may easily undo the recent gains, too, Hansteen says. Capesize scrapping will likely slow as rates improve, which will mean even more supply chasing demand. Likewise, shipowners may decide to up vessel speeds, which will also mean more supply in the market.
“The whole fleet could be speeded up,” Hansteen said. “That would keep a lid on further rate gains.”
