Many traders and analysts saw China’s record iron ore import of 86.83 million metric tonnes in January as a negative for the dry bulk shipping industry, because China could import less over the next few months as the inventory of iron ore at ports has risen.

Iron ore inventory restocking activity in China has been a key driver for higher Capesize rates towards the end of 2013 and in early 2014, which benefited the Guggenheim Shipping ETF (SEA) and other dry bulk stocks. Naturally, the recent “sharp” sell-off in the Baltic Dry Index raises the question of whether rates will climb back.

Navios’ take

Based on discussions at Navios’ 4Q 2013 earnings, it’s going to take some time. Some of the iron ore inventory may remain in the stockpile when prices come down due to significant capacity expansions in Australia and Brazil as China imports more iron ore from Australia and Brazil to replace its falling domestic iron ore grade. Iron ore inventory at Chinese ports could stay high, as it has in the past.

Clarksons project 7%

According to Clarksons, world seaborne imports of iron ore increased 7% in 2013 from the year before and are forecast to increase by a further 7% this year. China’s imports are predicted to increase 9%, to 895 million metric tonnes this year, which is close to what we saw in 2013. Brazil exports are projected to expand 3% this year, to 336.6 million metric tonnes after registering a 1% increase in 2013. Australia’s exports are projected to increase 11%.

If Clarksons’ projection is right, this should add additional ton-mile demand, since it takes about two to three times longer (a rough estimate) to ship dry bulks from Brazil than from Australia to China, which would support shipping rates and the Baltic Dry Index.