July 04, 2020

Commodity Freighters Are Shrugging Off COVID-19 — For Now

Commodity Freighters Are Shrugging Off COVID-19 — For Now
The cost of moving commodities like coal and ore across the world’s oceans is surging as China lifts cargo purchases. Whether the rally will withstand the economic aftershocks of the coronavirus may be a thornier question.

Rates for giant capesize ships climbed to almost $31,000 a day July 1, almost certainly the highest for the time of year since 2009. The rally has been driven by a rise in cargo flows from Australia and Brazil, the 2 top ore producers, as easing lockdown measures saw Chinese steel mills increasing purchases.

“There is robust demand from China, with production up 5% year-on-year in June,” said Frode Morkedal, an analyst at Clarkson Securities Ltd., a unit of the world’s biggest shipbroker. “Port inventories of ore are relatively low, so steel mills and traders are replenishing stocks.”

Steel output in China jumped to a record 92.27 million tons in May, consistent with the nation’s statistics bureau. The country accounts for 62% of the world’s production of the alloy. That’s helped attract ore cargoes during a market where supplies had previously been constrained after judges shuttered mines thanks to COVID-19 infections in Brazil.

Iron ore shipments from Australia, including Port Hedland, hit a record 21.1 million tons in the week ending June 26, according to Global Ports data compiled by Bloomberg.

Capesize dry-bulk shipping rates are surging as Chinese mills' buying recovers.

Longer Run
In the longer run, the shipping market’s fortunes are going to be heavily linked to how China sustains its economic revival while the pandemic continues to spread — especially if other nations take longer to recover.

China’s industry takes in about 70% of the world’s seaborne ore , and its grip on global consumption is strengthening in 2020. After the primary wave of virus controls were eased, demand surged as property developers trapped on lost time. The authorities also ordered an acceleration in infrastructure projects to battle the economic slump.

The country’s broader economy is making only a tentative recovery, though, and a flurry of fresh COVID-19 cases in Beijing should function a reminder of just how fragile that comeback could be.

For the time being, freight prices are still rallying.

“The recovery is underway with Capesize spot rates well above our expectations for the summer,” said Randy Giveans, senior vice chairman for equity research at Jefferies in Houston. “Most of the strength is thanks to increased Chinese steelworks demand for ore , low ore inventories, increasing production and exports out of Brazil.”

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