China's booming steel industry should help keep freight rates near record highs as mills turn increasingly to Brazil for iron ore because of a lack of suppliers nearer home, industry officials say.
Further pressure on rates for shipping dry bulk cargoes comes from a fall in coal exports from China, which is forcing neighbouring buyers such as Japan and South Korea to bring the fuel from further afield. In addition, China is increasing cement exports to the Middle East as India is keeping more of its production at home.
"Underlying (transport) demand seems extremely firm going forward," said Martin Rowe, managing director of Clarkson Asia in Hong Kong. "All the growth indicators from China are pointing in the right direction. We really don't see many clouds on the horizon at present time," he told Reuters.
China, home to the world's biggest steel industry, has released strong economic data for April. They included a 17.3 percent rise in factory output, record crude steel output, steel product exports and iron ore imports. China's finance ministry said on Monday it would raise export taxes on more than 80 types of steel products to try to ease its huge trade surplus.
Shipping officials said rates for cape-size vessels - used for hauling iron ore or coal - now stood at historic highs of $140,000 a day for travelling from Brazil to China. This meant freight now costs Chinese mills as much as the iron ore itself.
But they said Brazil still appeared to be the only option as Australia's ports were closer but affected by congestion while the monsoon season was about to hit ports in India.
Coal and iron ore account for about two-thirds of global bulk transport.
TRADE PATTERN, COAL PRICES "The key reason (for high freight rates) is changes in the trade pattern," said Geoffrey Cheng, director at Daiwa Institute of Research (HK) Ltd.
With China emerging as a net coal importer, north Asian buyers, including Japan, South Korea and Taiwan, are forced to buy from as far afield as South Africa instead. Coal traders said Chinese suppliers were shipping only the minimum at present due to ongoing 2007 term price talks, while few spot cargoes were available in Australia with ports there congested and Indonesia hit by rains.
Although China's biggest coal exporter, Shenhua Energy Co Ltd, said last week it had settled 2007 export prices at $60-$65 a tonne, coal traders said that only covered some contracts. They said negotiations continued for the rest of the contracts with the Chinese demanding over $70 a tonne and buyers holding out for $10-$15 below that.
"Many power generators are sending substitute vessels for spot cargoes. There's not much choice as they don't have much stock," a shipping executive said, adding that peak summer power consumption would soon begin.
With iron ore imports to China expected to climb by about 50 million tonnes in 2007 from 326 million tonnes last year, the increase in volume would require more than 50 additional cape-sized carriers, the executive calculated. Chinese mills and iron ore suppliers are seeking long term contracts to secure transportation, underpinning the outlook for freight rates, he added.
Mitsui O.S.K. Lines Ltd, the world's second-largest shipping company, announced on Monday it had signed a sixth long-term transport contract with China's Baoshan Iron and Steel Co Ltd Asked about steel exports, which Beijing is trying to curb, another shipping executive said: "Small steel mills are trying to clear warehouses before changes in rules. So there've been a lot of exports. Exports this month may be higher than in April."
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