Ross Murray’s comments on raw material market and freight rates
During his speech in the 38th IISI annual meeting in Istanbul, Mr. Ross Murray, the President Iron and
Slab, Industrial Markets, BlueScope Steel Limited shared his ideas on
steelmaking raw materials and sea
freight outlook with the members.
Mr. Murray referred to the 20% increase of crude steel
production of the world observed in the last three years. He said another more than 50 million tons of volume is expected to be added this year too. In light of such growth, Chinese steel industry will see an apparent increase in crude steel
production from a total of close to 800 million mts to close to 1 billion mts. This continuously rising steel
production growth has been putting pressure on the raw material suppliers and the transportation infrastructure. Including emerging economies he worked on three scenarios of global economic growth, which are low, base and high. Despite the record high oil prices, in his base case scenario where the world economic growth is at 3% and
China's at 7.5% through 2010, the world steel
production is expected to reach around 1.2 billion mts with half of the extra tonnage expected to come from
China. He expects the blast furnace
production will be focused on in other growing producers like
India, escalating the demand for raw materials like
iron ore and coke.
In line with such developments, the seaborne
iron ore trade will increase by around 140 million tons over today's levels.
China forecast is to increase demand considerably from 2004 through 2010 to about an annual 400 mio mt by 2010. Major
iron ore suppliers such as Australian
BHP,
Rio Tinto and Brazilian CVRD are increasing
production capacities to raise the supply level to a total of 901 million mt in 2005 and to 987 million in 2007 from today's level of 862 million.
Such rapid increase in the demand for
iron ore and coal also has its impact on
freight market. He mentioned that in the second half of the year, demand was well over the availability of Capesize vessels, also with the impact of congestions at the loading and discharging ports, occupying around 15% of the available capacity. This situation resulted in a hike of the
freight rates of Capesize jumping from a $15'000 per day long term average
freight to a over $100'000 spot rate, by early this year. In the coming months the freights softened to a certain stage where daily rates requested for these vessels were at $60'000 or more. Murray stated that the shipyards being fully booked with orders for other size of vessels, he cannot expect the Capesize capacity to be able to keep up with demand until 2006.
As a conclusion, Murray stated that the producers have been caught unprepared to such a high demand of raw materials this year, but are working to keep up with it trying to improve through capacity improvements to secure a consistent supply in the long term.