The increases in Brazilian iron ore exports open up great prospects for dry bulk shipping, in particular the Capesize segment.
In the first three quarters of 2014, Brazilian iron ore exports have gone up by more than 6% on a global scale and since a growth of 10% is expected for the full year, Q4 appears to be heading in the same direction. Both Australian and Brazilian iron ore exports have long been expected to reach new heights in the last quarter of this year and we are now starting to see the effects.
The increases in Brazilian iron ore exports open up great prospects for dry bulk shipping, in particular the Capesize segment. The average of the 4 time charter routes has been on the rise for about two weeks now, rising from USD 7,932 per day to more than three times as much at USD 24,176 per day today.
The increase in exports are going to China, and as the world’s biggest importer of iron ore, the changes can be felt in the Capesize market. The Chinese are increasingly substituting high quality imported ore for domestically mined ore of lower Fe content and are buying more and more from abroad. The fact that the Chinese economy has showed signs of slowing down has not reduced their appetite for imported ore.
Annual economic growth in China slowed to 7.3% in Q3 2014, compared to 7.5% in the previous quarter, the lowest recorded since the financial crisis. During the first nine months of this year China has imported 699.5 million tons of iron ore, marking an increase of more than 16% compared to the same period last year.
Australia keeps feeding China’s iron ore demand.
Australia is still by far the biggest supplier, with more than 405 million tons of iron ore exported to China this year. Australia’s share is more than three times that of the second largest supplier, Brazil, that has so far exported around 125 million tons.
Looking back on the last three years of iron ore exports to China, it is clear that Australia’s share has been growing stronger every year. In 2011, 43% of the iron ore going in to China came from Australia. In 2013, it was more than 50% and for the first three quarters of this year it is just over 58%. In the same period, Brazil’s market share has dropped from around 20% in 2011 to 19% last year and 18% so far this year. The short distance between Australia and China means a growing Australian market share does not benefit the Capesize segment in the same way that an increase in Brazil’s share does.
China is estimated to hit the record 940 million tons of imported iron ore this year and nothing seems to be able to slow this down. There do not appear to be any signs that the Chinese demand for iron ore will not remain healthy in 2015 as well, and that China will continue to soak up most of the future global surplus.