Free-Falling Freight Rates Spell Trouble For Shipping
February 07 2019 - 12:55PM
Dow Jones News
By Costas Paris
A slowing global economy, coupled with weak demand from China
over the Lunar New Year and from Brazil after Vale SA's iron ore
disaster, are dragging shipping rates to near record lows, and few
in the industry expect things to improve any time soon.
Brokers in Singapore and London said capesize vessels, the
largest ships that move bulk commodities like iron ore, coal and
aluminum, were chartered in the spot market for as low as $8,200 a
day on Thursday, a $500 decline from Wednesday. Break-even costs
for carriers can be as high as $15,000 a day, and daily rates in
the capesize market hovered above $20,000 last year.
"Everyone is looking for a catalyst to push the market up, but
it's not there," said a Singapore broker.
The Baltic Dry Index, which tracks the cost of moving bulk
commodities and is considered a leading indicator of global trade,
is down more than 50% since the start of the year.
The long Lunar New Year holiday in early February is one of the
slowest periods in commodities trading as factories in China, the
world's biggest importer of raw materials, shut down. But ship
executives say the bulk seaborne freight business is more broadly
suffering from the lowest demand in two years, while China's trade
tussle with the U.S. is making the market more volatile.
"A long slowdown in the Chinese economy will hurt commodity
demand and send shipping rates sharply lower," Bloomberg
Intelligence industry analyst Rahul Kapoor said.
The Vale iron ore disaster in Brazil in January, in which a
mining dam burst, triggering a flood that killed at least 150
people and left close to 200 more missing and feared dead, created
a new source of uncertainty.
Vale has suspended production at a number of sites, removing 40
million tons of annual output, or 11% of the giant miner's total
production in 2017.
The reduced sailings could affect dry bulk owners, including
China Cosco Bulk Shipping Co. Ltd, Norway's Golden Ocean Group and
Greece's Diana Shipping Inc.
"The Vale void will be largely covered by iron ore shipments out
of Australia," the Singapore broker said, "but Brazil generally
commands higher freight rates so there is no good news."
China has resumed importing soybeans from the U.S., a sign of
progress in talks between Washington and Beijing. But the 540,000
metric tons of shipments from the U.S. in January were less than
half the monthly average last year.
"If you are a bulk owner, you can no longer depend solely on
China to make money, and that's a seismic shift," said a London
broker.
Write to Costas Paris at costas.paris@wsj.com
(END) Dow Jones Newswires
February 07, 2019 12:40 ET (17:40 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
VALE ON (BOV:VALE3)
Historical Stock Chart
From Aug 2024 to Sep 2024
VALE ON (BOV:VALE3)
Historical Stock Chart
From Sep 2023 to Sep 2024