Severe flooding in Queensland, Australia damages mines and halts shipments of coking coal to major steel producers in Asia.
According to government officials in Queensland, Australia, the relentless flooding during January has caused at least $5 billion in damage throughout the state, which is responsible for 90 percent of the nation's coking coal exports. Overall, the floods have affected 37 percent of the world's coking coal trade, and major steel producers in Asia are expected to pay up to 33 percent more for the vital steelmaking fuel. Because half of all seaborne dry bulk trade is steel related, freight rates have softened considerably over the past month.
Other factors that are driving down freight rates include China's slowdown in iron ore imports ahead of the Lunar New Year, India raising transportation costs by 50 percent for iron ore exports, and additional weather maladies in Australia such as cyclones, which present significant threats to the country's export abilities in the near future.
However, the long-term outlook for the global dry bulk trade reflects a positive trend. Most major steelmaking regions substantially increased crude steel production for the full year 2010 compared to 2009: the US improved by 35.5 percent; Japan by 25.2 percent; the European Union by 24.5 percent; South Korea was up 20.3 percent; and Russia by 11.7 percent. Such gains helped offset the relatively slow growth of China's steel industry, which only improved by 9.3 percent year-over-year (dropping their share of global steel production to 63.5 percent from 65.5 percent in 2009).
Additionally, total dry bulk shipment activity improved immensely over the past year-Capesize ships delivered a total of 170 units 2010, compared to 90 in 2009; and Handmax ships delivered a total of 300 units last year, compared to 170 in 2009. Total tonnage for the two ship sizes amounted to 31 million dwt. (deadweight) and 17 million dwt., respectively.
While shipments are on par for another year of improvement, freight rate forecasts are harder to pin down. Throughout January 2011, rates for both Capesize and Handymax ships fell nearly every week--by the end of the month, after the Australian flood situation had peaked in severity, Capesize rates dropped an astounding 30.3 percent week-on-week. Handymax rates only saw one bright spot during the middle of the month, when improved activity in North and South America helped lift rates 1.8 percent the week ending January 21.
Parcel freight rates, in contrast, have remained relatively stable over the past month. Current Handymax rates to the US for large tonnage of steel (i.e. at least 15K tons of HRC or wire rod) are still as follows:
Baltic Sea to US East Coast: $60-$65/mt
Baltic Sea to US Gulf Coast: $55-$60/mt
Black Sea and Mediterranean Sea to US East Coast: $60-$65/mt
Black Sea and Mediterranean Sea to US Gulf Coast: $55-$60/mt
East Asia to US Gulf Coast: $60-$65/mt
East Asia to US West Coast: $55-$60/mt