Global Spot Chartering Activity Remains Firm
Through the first three days of this week, the Baltic Dry Index has fallen by 39 points to 867 points. This represents a decrease of 4.3% from the end of last week. In total, 54 cargoes have been chartered in the spot market so far this week. In comparison, 57 cargoes were chartered during the first three days of last week. Capesize rates fell on Monday and Tuesday but increased on Wednesday. Capesize rates are rising again as Chinese demand for iron ore imports has remained strong and capesize fleet growth has continued to decline. Rates for the other three dry bulk vessel classes have continued to come under additional pressure.
Chinese Steel Production Sets Another Record
Recently released data from the China Iron and Steel Association (CISA) shows that average daily crude steel production at China's key steel mills hit a record of 1.833 million tons during the first ten days of this month. Previously, daily crude steel production at China's key steel mills during the last eleven days of May averaged 1.767 million tons - which was a high level, although down from the previous record of 1.824 million tons seen during the first ten days of May. It is very encouraging that Chinese steel production has set another record this month.
Chinese steel production has remained very strong during the last several months. While Chinese steel production normally comes under a small amount of pressure in June (while still remaining at robust levels), it is very encouraging and not at all surprising that production has set another record this month. Steel demand in China has remained firm as the government continues to green light new infrastructure projects and works towards further stimulating the economy. In addition, low iron ore prices have allowed profit margins at Chinese steel mills to improve significantly since the start of this year. Global demand for Chinese steel exports has also remained robust, even as global steel production has also set a new record this year.
Record steel production means record iron ore consumption. Overall, Chinese iron ore consumption has remained robust this year and Chinese iron ore imports have continued to surge. Chinese steel mills continue to purchase a record amount of iron ore imports this year, with Chinese iron ore imports this year up by approximately 20% from last year's record level. Going forward, Australian and Brazilian iron ore production is set to surge even further and steel mills will continue to purchase record amounts of low-priced high quality iron ore from Australia and Brazil. At the same time, more Chinese domestic iron ore mines are likely to suspend iron ore production. Seaborne iron ore trade is poised to remain extremely robust. This is very beneficial to the capesize segment of the dry bulk shipping market.
Chinese Iron Ore Production Continues to Decline
A larger amount of small and medium-sized domestic Chinese iron ore mines have reportedly suspended the production of iron ore in recent weeks now that spot iron ore prices have long remained below the $95 level. Chinese demand for imported iron ore cargoes has stayed robust, though, as spot iron ore cargo prices remain very low and remain very attractive to Chinese steel mills (spot iron ore prices have fallen because so much new iron ore is being produced in Australia and Brazil). A greater number of small and medium-sized Chinese domestic iron ore mines have suspended iron ore production as the mines in China have very high costs and more can't make money on the currently low spot iron ore prices.