China's resurgence of iron ore imports uplifts Capesize rates, while smaller ships into the US follow the nation's recovering steel industry in a sideways pattern.
Steel markets in vital regions are easing, reflected in lower dry bulk cargo volumes and a sideways to downward trend in Handymax freight rates. Overall, the worldwide dry bulk market is stable-many regional steel industries, such as North America, are keeping inventories low and not stockpiling imports, while China, the country most influential on the ocean freight market, has only just regained its upward momentum.
As the Chinese government attempted to rein in overcapacity and shut down inefficient mills, crude steel production for August dipped marginally, to 51.64 million mt compared to 51.7 million mt in July. Steel exports from the country also declined over the month-the 2.8 million mt total in August reflected a significant 38 percent decrease from the previous month. Consequently, iron ore imports also dropped in August, at 44.6 million metric tons (mt)-a 13 percent month-on-month and 10.2 percent year-on-year decrease. The decrease in imports can also be partially attributed to China's ever-growing domestic iron ore production, which, at 99.58 million mt in August, reflected a 2 percent increase from July. Even though Chinese iron ore is of lower grade than imported quality, they seem determined to shift the balance and take more control of their raw material supply.
However, iron ore imports jumped back up in September, to 52.6 million mt, an increase of 18 percent month-on-month. According to leading maritime broker Banchero Costa, fears that Chinese iron ore demand has stagnated are unfounded. The Chinese government has reined in the real estate market, a move that has contributed to forecasts of a 2 percent year-on-year decrease for 2010 total iron ore imports, but infrastructure development, including roads, bridges, and other community resources, is still booming.
India, one of China's major sources for iron ore, stands to benefit from China's upward momentum, unless government policies intervene-iron ore exports have already been banned in the Karnataka State, and the Indian government may start to ban iron ore imports nation-wide. Nevertheless, India exported 116 million tons of iron ore in 2009, placing the country third in the list of the world's largest seaborne exporters of iron ore, and forecasts for 2010 levels are optimistic.
Ocean freight activity out of India helped stabilize the market somewhat during China's August decline in imports, and after dips and bumps in September, Capesize rates are currently on an upward path. In the beginning of the September, rates soared 17.7 percent in the span of a week, only to come back down by virtually the same amount (17.5 percent) just a couple weeks later. But by the beginning of October, rates started to rise-by 12.5 percent the last week of September, and up 25 percent the first week of October.
Handymax rates, on the other hand, saw a mostly sideways to downward trend throughout the month of September, with marginal downticks each week. By the last week of September, rates were down 3.2 percent from the previous week-as of October 8, rates were down another 0.4 percent. Import activity, especially into the US, was slow throughout the September, and thus parcel steel shipment rates stayed the same from August. 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