Rio, BHP Still Shipping Iron Ore To China; Freight Market Firm
July 17 2009 - 6:56AM
Dow Jones News
Rising spot prices for iron ore have been fueled by reports that
Rio Tinto (RTP) and BHP Billiton (BHP) may have slowed or even
suspended shipments to China following the detention of Rio Tinto
executives by Chinese authorities, but freight market participants
say this is not the case.
Spot prices in China hit a 2009 high of $87/ton, basis cost and
freight, this week say Indian traders, apparently boosted by fears
that Australian supply could be choked off by the dispute between
Australia and China over the July 5 arrest of four Rio Tinto iron
ore marketing executives on suspicion of espionage.
The arrests followed the collapse of annual iron ore contract
negotiations between global mining companies and Chinese steel
mills.
Reports that Australian miners have slowed shipments are
misleading said a Singapore based broker at a global shipping
company.
"Rio Tinto have been fairly quiet recently but still booked 6
capesize (vessels) this week. They are still making enquiries and
are probably waiting for (freight) rates to fall," he said.
The broker said that high spot iron ore prices probably have
more to do with China's "insatiable" appetite for the steel
industry feedstock and bottlenecks at Chinese ports where there are
up to 20-day delays before vessels can unload.
Citigroup commodities analyst Alan Heap said in a report Friday
that the increase in spot prices was due to a preference for
imported ore and added that Australian miners were operating
normally.
"We believe Australian exporters are continuing (to maintain)
spot and contract export volumes," he said.
China imported 55.3 million metric tons of iron ore in June, up
46% on year. In the January-to-June period, the world's largest ore
buyer has sucked in 297.2 million tons of ore, about a third more
than in the same period last year.
In addition, the spot price of Indian iron ore has been going up
since April, well before the iron ore talks collapsed, and there
has been no noticeable acceleration since the Rio Tinto arrests
were made, industry participants said.
Traders in the eastern part of India said iron ore prices have
been quoted around $86-$87/ton C&F this week but are more
typically in the $80-$82/ton range for the benchmark Fe63.5 grade
ore, compared with a 2009 low of $62.50 in mid-April.
The Singapore-based shipbroker said BHP Billiton had been out of
the spot dry bulk freight market recently which could have
contributed to the speculation over the China-Australia espionage
spat. However he noted that BHP had been absent for three weeks,
pre-dating the arrest of Rio Tinto iron ore executives.
This is unusual, but not unprecedented, and the mining company
was making enquiries as normal, and like Rio Tinto was probably
hoping that freight rates would fall, he said.
Mining companies have their own fleets and also take ships on
time charters, so only service part of their freight requirements
on the spot market.
"Vale were very active last week but they haven't booked any
fixtures this week as they are unwilling to push the market
higher," he added.
The week ending July 10 saw 20 capesize fixtures booked on the
route from Brazil to China, most by Vale, tightening the Atlantic
basin significantly and paving the way for this weeks freight rate
strength, said a Singapore-based freight forward agreements (FFA)
broker.
"It definitely feels bullish. There's been some selling pressure
in Q3 (the freight forward curve) this week but rates haven't moved
much," the FFA broker said.
The Baltic Dry Index was at 3,501 yesterday, up 5.3% on the day
and up 352% for the year, but down 18% from its 2009 high of 4,291
hit June 3.
"It's quite positive that the mining companies have been quiet
recently but the market has remained so solid. When BHP and Vale
come back in, it's likely to push rates up further," said the ship
broker.
The sustained strength in dry bulk freight rates is a surprise
to many market participants as the delivery of new capesize vessels
was expected to have depressed freight rates by now.
Shipping sources say that "slippage" at shipyards is meaning
many deliveries are being pushed back to 2010, which alongside
China's huge appetite for raw materials, is supporting the market
at profitable levels for most participants.
(Chuin-Wei Yap in Beijing and Arpan Mukherjee in New Delhi
contributed to this report)
-By James Campbell, Dow Jones Newswires; 65-64154-082; james.campbell@dowjones.com