Freight Rates Tumbling as 35 Miles of Ships Passes Ore Demand
By Alistair Holloway - Jan 9, 2011 7:00 PM ET
Business ExchangeBuzz
A BHP Billiton Ltd. train carrying iron ore heads to Port Hedland in north western Australia, Jan. 21, 2009. Photographer: Nelson Ching/Bloomberg News
At a time when analysts anticipate record profits for the biggest mining companies and a third year of gains in commodity prices, shipping lines carrying raw materials are set for the lowest freight rates since 2002.
Leasing costs for capesizes, 1,000-foot-long ships hauling iron ore and coal, will drop 34 percent to average $22,000 a day this year, according to the median in a Bloomberg survey of eight fund managers and analysts. The last time that happened, China’s economy, the biggest consumer of the minerals used in steel and power, was 75 percent smaller and the benchmark Standard & Poor’s GSCI commodity index 67 percent lower.
While Clarkson Plc, the world’s biggest shipbroker, expects seaborne trade in the two cargoes to exceed 2 billion metric tons for the first time this year, the 7 percent increase won’t be enough to eliminate a glut. About 200 capesizes, spanning some 35 miles end-to-end, will leave shipyards this year, expanding the fleet by 18 percent, the Bloomberg survey showed.
“The market was able to take a punch in the face in the form of 200 capesizes and loads of smaller vessels last year but I doubt it will manage another punch without having to hit the deck,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo who correctly forecast in July that rental costs would more than triple by the fourth quarter.
Rates averaged $34,913 a day in the final three months of 2010, 33 percent more than in the previous quarter. Tariffs are already plunging, dropping 36 percent last week to $12,897, as ships leave yards in China, Japan, the Philippines and South Korea, according to data from the London-based Baltic Exchange, which publishes assessments for more than 50 shipping routes.
