Shippers benefit as China laps up Brazilian iron ore
29/12/2017 17:18
By John Benny
Dec 29 (Reuters) - U.S. dry bulk shippers are set to post
strong revenue growth in the next two years thanks to soaring
Chinese demand for high-grade iron ore from Brazil and
Australia.
To combat severe winter smog, China has slashed iron ore
output, pushing steel mills in the world's second biggest
economy to import more high-grade ore.
China also wants to make pollution control a priority for
the next three years. urn:newsml:reuters.com:*:nB9N1MU02E
"China's increasing demand for higher quality iron ore,
along with greater supply coming online from Brazil, has boded
well for capesize rates in recent months ... we believe this
trend will continue going forward," Gary Vogel, the chief
executive of New York-based Eagle Bulk Shipping Inc EGLE.O ,
told Reuters.
Average rates for capesize vessels - massive ships that
typically transport 150,000-tonne cargoes - are expected to jump
to about $24,000 next year from less than $14,000 in 2017,
Morgan Stanley analyst Fotis Giannakoulis said.
Iron ore demand from China should rise 4 to 5 percent on
average over the next three years, in pace with demand in 2017,
said Seanergy Maritime Holdings Corp SHIP.O CEO Stamatis
Tsantanis.
While Australia is the top iron ore exporter to China with
652 million tonnes exported from Western Australia last year,
Brazil has been catching up rapidly with better quality ore.
Exports of Brazilian iron ore to China rose nearly 16
percent to 214 million tonnes in 2016, according to Brazil's
Ministry of Foreign Trade. (http://bit.ly/2CiQZNK)
Meanwhile, Western Australia's Chinese exports rose 6
percent, although that lagged the past decade's 18 percent
average yearly growth, according to a government report. (http://bit.ly/2yCr6qW)
For shippers, rising Chinese demand for Australian and
Brazilian iron ore translates into much higher revenue.
A voyage from Tubarao port in Eastern Brazil to Qingdao in
Eastern China needs three times as many tonne miles as a trip
from Qingdao to Dampier in Western Australia would.
There has already been a noticeable impact. Average daily
earnings for capesizes hit a fresh three-year high on November
30 after China ordered steel mills in 28 cities to slash
production for a few months to reduce emissions of pollutants.
Shippers that largely operate capesizes including Star Bulk
Carriers Corp SBLK.O , Safe Bulkers Inc SB.N and Scorpio
Bulkers Inc SALT.N are expected to increase revenue between 23
and 33 percent next year, according to Thomson Reuters I/B/E/S.
Capesize rates have benefited from other factors too.
After years of declining demand and a consequent fall in
shipbuilding, a scarcity of ships has contributed to higher
rates. A recent maritime traffic jam at Chinese and Australian
ports has also helped. urn:newsml:reuters.com:*:nL4N1OK2YE
Market rates for capesizes are soaring as ship owners with
vessels stuck in the gridlock struggle to hire out vessels.
For the first time in more than 15 years, there will be a
supply deficit of ships because the current orderbook of
capesizes stands at historic lows, Seanergy's Tsantanis said.
"Capacity of the global shipyards is nowhere near to cover
the incremental demand requirement in 2018, 19 and 20."
(Reporting by John Benny in Bengaluru; Editing by Sayantani
Ghosh and Sai Sachin Ravikumar)
((John.Benny@thomsonreuters.com; +1 646-223-8780; Reuters
Messaging: John.Benny.thomsonreuters.com@reuters.net))
Keywords: SHIPPING CHINA/