Hot Issues in the Dry Bulk Market

2014-05-31

Global Spot Chartering Activity Has Decreased

Through the first three days of this week, the Baltic Dry Index has decreased by 10 points to 954 points. This represents a decrease of 1% from the end of last week. In total, 42 cargoes have been chartered in the spot market so far this week, which is down from last week but still a firm amount. In comparison, 60 cargoes were chartered during the first three days of last week. This week has one less chartering day, however, due to the UK bank holiday on Monday.

Port Hedland Strike Is Unlikely

Port Hedland tugboat workers have pushed back the possible start date for their long-threatened strike by 30 days, with a strike now being possible for late June. However, Australia’s government is unlikely to sit idle if a prolonged tugboat worker strike were to actually occur. A full week of striking tugboat workers would affect over $1 billion of iron ore exports. Australia’s economy relies heavily on iron ore exports, and so many other workers (miners, port workers, etc.) would be affected by such a small amount of tugboat workers going on strike. It remains very likely that a strike at Port Hedland will actually occur. Iron ore shipments from Australia are very likely to remain robust and are unlikely be disrupted.

Much Warmer Than Usual Temperatures to Boost Chinese Thermal Coal Demand

Beijing and much of northeastern China have continued to experience very warm weather. The temperature in Beijing hit a high of 35 degrees Celsius (95 degrees Fahrenheit) on Thursday May 22nd. This is extremely hot as Beijing normally sees a high of only 26 degrees Celsius (79 degrees Fahrenheit) in May. Temperatures have risen even further this week. This Wednesday is expected to see a high of 38 degrees Celsius (100 degrees Fahrenheit), and Thursday is expected to see a high of 39 degrees Celsius (103 degrees Fahrenheit).

It is very encouraging for electricity production and thermal coal demand and import prospects that such warm weather is occurring in China. Shanghai is also experiencing warmer than usual weather, with temperatures expected to peak at a high of 34 degrees Celsius (93 degrees Fahrenheit) this week. Overall, much of China is seeing very warm weather this week that will far exceed the peak highs usually reserved for July and August.

Electricity production and demand for thermal coal peak in July and August of every year, as this is when temperatures and residential electricity demand surge due to summer weather (air conditioning reportedly takes more than 33% of peak electricity load in every summer). Chinese electricity production and demand is poised to rise further in the near term, which will further increase the demand for thermal coal. With coal port stockpiles low in China, the increase in demand will lead to more thermal coal imports into China. This will help the capesize, panamax, and supramax segments of the dry bulk shipping market.

Global Media Oblivious to Robust Iron Ore Demand in China

During the last several months, major foreign media outlets have been publishing poorly researched articles concerning Chinese iron ore demand. Many articles have talked about iron ore demand being low in China, but this is not true as steel production in China has been at record since March (and iron ore consumption in China, therefore, has also been at a record since March as well). Iron ore demand and iron ore imports have both been at record levels. Despite this fact, however, many articles have been published by large global media outlets during the last several months inaccurately stating that Chinese demand for iron ore has been weak.

It is no secret that iron ore imports are climbing (and spot iron ore prices are falling) due to the ongoing rise in iron ore production in Australia and Brazil, but many uneducated journalists see the decline in spot iron ore prices and think that Chinese demand for iron ore must just be decreasing. This could not be any less true. Chinese demand for iron ore has been at a record level since March. Data from the Chinese government and World Steel Association both have shown that Chinese steel production (and therefore iron ore consumption) have been at a record since March. Chinese crude steel production totaled 70.3 million tons in March and 68.4 million tons in April (April’s total was lower than March’s total, as March contained one less day). It also has been reported by the China Iron and Steel Association (CISA) that steel production has set another record during the first ten days of this month.

At the same time, Chinese steel stockpiles have fallen for eleven straight weeks and remain well below last year's level. In addition, iron ore port stockpiles, while still very high, have stayed relatively flat since the end of February -- even as iron ore imports have continued to increase. Clearly, Chinese iron ore demand remains incredibly strong and yet well known media outlets continue to publish extremely bearish and misguided articles stating that demand for iron ore has been weak. Those who follow the seaborne trade of iron ore (or anyone who is aware steel production data) know the truth. Iron ore demand in China has remained robust. Going forward, an even larger amount of Australian and Brazilian iron ore will be surfacing during the second half of this year and Chinese iron ore imports will remain robust. Iron ore import prices are set to remain low and will remain very attractive to Chinese steel mills (and importantly, continue to help lower their costs and improve still mills; profit margins). Iron ore imports also remain in the best interest of China’s environment, as domestic iron ore mined in China is of much lesser iron content and pollutes much more than imported iron ore.

Source from : CNSS

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