Iron ore shipping costs plunge 47%

THE cost of hauling iron ore and coal fell to a four-month low, extending this year’s decline to 47 percent, amid concerns a Chinese economic slowdown will curb steel production, the biggest driver of global shipping demand.

Rates to hire a capesize ship, the largest in the fleet of dry-bulk vessels, dropped 6.1 percent to $14,535 a day, according to the London-based Baltic Exchange. That’s less than half the 2011 high of $32,889 reached on Dec. 12, according to exchange data.

“Concerns about a Chinese economic slowdown mean that there are real risks to weaker Chinese steel production (CHMMCRST) growth in 2012, which the capesize sector is highly leveraged to,” Natasha Boyden, an analyst at New York-based Cantor Fitzgerald LP, wrote.

The Baltic Dry Index, a measure of charter costs for four classes of vessels, declined 2.9 percent to 1,308 points, according to the exchange, which publishes rates for more than 50 maritime routes. That’s the lowest level since Aug. 15. The gauge has fallen 25 percent in 2012, as earnings for the other vessel types also declined, while at a lower pace than capesizes.

A surge in new vessels being delivered from shipyards in January will entrench hire costs for the fleet of 1,335 capesize ships at current lows, Cantor Fitzgerald said. Rainy weather in Australia and Brazil, the largest exporters of iron ore, also cut shipments (AUITIROV) amid falling demand ahead of the Chinese New Year shutdown later this month, the investment bank said.

China’s steel production (IISICHIN) has declined for six straight months, falling to 49.8 million metric tons in November, according to the most recent data from the World Steel Association.

51% of dry-bulk seaborne trade

Iron ore, coking coal used in steel making, and steel products account for 51 percent of dry-bulk seaborne trade, estimated at 3.4 billion tons in 2011, according to Germany’s DVB Bank SE (DVB), which specializes in transportation lending. An estimated 63 percent of the 1-billion tons of ore shipped by sea in 2011 went to China, according to UBS AG.

There may be a “significant slowdown in the coming months” in global steel production if the world economy slips into recession, DVB said in a report Jan. 6. Chinese steel production was expected to expand 11.6 percent to 700 million tons in 2011, DVB forecast.

Weakening Chinese demand for ore in the past two weeks contributed to the “freefall” in the Baltic Dry Index, BOCOM International, a Hong Kong-based subsidiary of China’s Bank of Communications Co., said in a report today. The index will average 1,250 to 1,300 this year, as much as 19 percent lower than 2011, as the oversupply of new ships weighs on freight rates, BOCOM forecast.

Fleet Expansion

The dry bulk fleet will expand by 4.5 percent in the first six months, driving hire costs lower, Maritime Strategies International Ltd. said in a report e-mailed Jan. 6. Capesize rates won’t rise, on average, until March when they’ll reach $18,000 a day, the London-based shipping consultancy said.

Contracts used to bet on or hedge future ore-shipping costs for the first quarter of 2012 traded at $12,750 a day by 3:36 p.m. in London, according to Clarkson Securities Ltd.

Panamaxes, the largest ships that navigate the Panama Canal, fell 2.1 percent to $12,020 a day, according to the Baltic Exchange.

Supramax vessels, which carry about 25 percent less cargo than panamaxes, slid 1.2 percent to $11,487 a day, the lowest rate since Feb. 8. Handysize ships, the smallest tracked by the index, fell 0.7 percent to $8,062.