A major owner of capesize bulkers remains bullish on the outlook for the sector in 2019 despite worries over the impact of last week’s collapse of a Vale-owned dam in Brazil.
John Wobensmith, chief executive of Genco Shipping & Trading, tells TradeWinds that capesizes remain one of the most promising classes in the owner’s fleet this year and that initial negative projections from equity analysts probably have been overstated.
New York-listed Genco owns 17 capesizes in its fleet of 61 bulkers. The trade represents about 34% of its business.
"I think we’re all waiting to hear from Vale — right now that are quite rightly focused on the human impact as rescue efforts are ongoing and we all hope for a successful conclusion,” Wobensmith said on the sidelines of Noble Capital Markets’ annual investor conference in Fort Lauderdale, Florida.
At least 65 people have been confirmed dead after the Bela Horizonte barrier used for holding waste water and mud from the Fieja iron ore mine burst. More than 300 are missing.
“The reality is that the mine that was involved was already in a decommissioning stage and produced only 7 million tonnes of iron ore last year,” Wobensmith said.
“Vale’s whole southern system is being phased out because it produces lower quality iron ore. It is being shifted to the north, where the quality of the iron ore is higher.
"I don’t see a medium-term or long-term effect in terms of actual volumes. Vale already had projected an additional 15 million tonnes of additional production this year and (miner) Anglo American an additional 18 million as they come back on line.”
The incident could result in the acceleration of the shift from southern to northern production, he said.
"This is obviously a very large human catastrophe, but in business terms, we’re still confident in the volume of iron ore production this year," Wobensmith said.
Vale appeared to lend support to Wobensmith's thesis in a statement released later Tuesday.
While its plans to decommission 19 dams may lead to the dislocation of 40 million tonnes of iron ore per year, the miner said the decrease "will be offset by the increase in production of other systems of the company."
Vale added that it "expects to reallocate all its collaborators currently located in the operations that will be halted."
Sounding less confident have been a number of equity analysts assessing the situation.
Stifel analyst BenNolan said in a research note this week that Vale production could drop more than 6% as a result of the incident, while Arctic Securities’ Lars Bastian Ostereng said the integrity of more than 100 Vale dams across Brazil could be called into question.
Analysts said the mine disaster could add to the woes already confronting the dry bulk sector over fears that the Chinese economy is slowing.
Genco in presentation materials has projected a 5.4% increase in demand for iron ore in 2019, the highest among the commodities it carries. Genco uses capesizes exclusively for the cargoes.
In comparison, it sees a rise of 1.8% in coal, which it transports on both panamaxes and capesizes. The projected increase for grain on panamax, supramax and handysize voyages is 2.2% and minor bulks on supramaxes and handysizes at 3.1%.
This is measured against projected fleet growth of 1.9%.
