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Japanese ore import reductions may impact freight rates

Japanese ore import reductions may impact freight rates

Tokyo: The rather perilous dry bulk market may see a further reduction to freight rates if Japanese steel makers are successful in cancelling existing contracts for imports of iron ore and coking coal. Bloomberg has reported that the world's second-largest steelmaker, Nippon Steel, is one of the companies currently in negotiations with mining companies to cancel some deliveries as it reduces production.

Last week, the Baltic Dry Index, which measures dry bulk shipping rates on 40 routes across the world, sank 3.9% to 733 points, its seventh straight daily decline and its lowest level since January 1987. The index has plummeted 94% from its high in late May. Many are anticipating that in the next couple of weeks it could hit a record low.

The steel producer sought the changes after deepening its output cuts in the second half of the year because of falling demand, executives involved in purchases told the newswire. They declined to be named as talks are confidential. Sumitomo Metal Industries Ltd., Japan's third-biggest mill, was also considering cancellations, spokesman Toshifumi Matsui is reported to have said by phone.

Nippon Steel and rivals are reducing output as global market turmoil pushes countries from Europe to the U.S. and Japan into recession. BHP Billiton Ltd., partner in the world's biggest coking coal exporter, and Rio Tinto Group may have to cut contract prices by a third next year because of slumping demand from steelmakers, according to a Bloomberg survey of analysts.

"Not only us but most Japanese mills are considering cancelling iron ore and coking coal contracts," Matsui said. Kobe Steel Ltd. was looking at shipment cancellations, spokesman Hiroyuku Hashimoto said today by phone.

Japan's crude steel output fell 2.7% in October from a year earlier, the first drop in 29 months, the country's iron & steel federation said in a statement on Nov. 19.

"From one month ago Japanese steelmakers started asking us to ship ore and coal at a slower pace," Masafumi Yasuoka, senior executive officer at MOL, told Bloomberg in a telephone interview. Mills sought a five to seven day extension to a return voyage that typically requires 20 days, he said.  [02/12/08]