Shanghai: A rebound in iron ore imports to China has floated dry bulk shippers off the rocks, writes Forbes. Spot market charter rates for capesize vessels dipped to about $2,000 a day in November, as the global financial crisis deflated Western consumer demand for Chinese goods. Day rates started to pick up in December, after China announced a half-trillion-dollar stimulus plan, rising to $90,000 in May, and settling at $60,000 on Tuesday.
"There has been a huge improvement, well above cash costs for this industry," says Oppenheimer analyst Scott Burk. Most capesize vessels break even at $15,000 a day.
Steel production is booming again in China, driven by the country's $586 billion stimulus package. Much of that steel is being made from imported iron ore since many of the country's high-cost ore mines have been shuttered.
As domestic mines slowly ramp back up, dry bulk shippers have been reaping a windfall in revenue, feeding the beast with ore from Brazil, India and Australia. China is the largest importer of iron ore in the world, taking up half the market last year, and it's poised to hit 70% of the market in 2009.
Monthly shipments to China fell off dramatically at the end of 2008, but by spring had climbed past the first half of 2008's monthly average of 40 million tons. Imports in May were 57 million tons; in June, 55 million. Despite some 15 million tons more a month in imports, Burk and other analysts say China's iron ore inventory from imports has remained relatively flat in recent months. Until recently, iron ore imports were some $25 a ton off the marginal cost to mine it in China, which is about $80 a ton.
That gap has collapsed. Spot prices for iron ore in China this week are about $85.
Meanwhile, Chinese steel production in June hit record levels, 49.42 million tons, with increasing reliance on domestic ore, Reuters recently reported. Analysts have estimated that anywhere from a fifth to half of Chinese ore mines have been closed in 2009. [22/07/09]
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