China key to dry bulk freight rates rebound

Navios Maritime Partners partly attributed “measured optimism” for 2009 bulk carrier prospects to steady levels of Chinese steel production and a surge in bank lending in that country.
“Chinese seaborne iron ore demand is more a function of the price difference between domestic and imported iron ore, rather than steel production levels, Navios Maritime executive vice-president, business development George Achniotis said.
“China is substituting more expensive and lower quality domestic iron ore with imported ore. Spot iron ore prices are well below domestic production break even levels.”
As a result, iron ore imports hit records in February and March, pushing up demand for bulk carrier vessels on the major shipping route from Brazil to China.
The Chinese used domestic iron ore for 60% of their steel production in June 2008, Mr Achniotis said. Today that figure comprised 38%.
The three largest producers, Vale, BHP Billiton and Rio Tinto were also selling iron ore at a discount, further eroding the competitiveness of Chinese domestic iron ore.
Up to half the local mines had closed as a result, conferences were told.
Genco Shipping and Trading chairman Peter Georgiopoulos said the difference in price between imported and local iron ore was now at US$15-US$20 per tonne.
Chinese steel production accounts for 35% of global steel demand and 50% of the global iron ore market.
Seanergy Maritime chief executive Dale Ploughman forecast Chinese GDP at 8%, which would benefit the iron ore trades.
“As the global economy improves and the export of finished product demand starts to improve, we could start to see record levels of iron ore imports into China,” he said.
Chinese steel production had risen by 2.1% in 2009, compared to last year, Mr Georgiopoulos said.
New loans in March totalled US$277bn, setting a new Chinese record. The resurgence in business had boosted interest in chartering tonnage for longer-term periods up several years, he said.
Despite high levels of inquiry, “we don’t have much willingness to fix in the current rate environment.”