Feb 29 Dry bulk transporters, already hit
by an oversupply of ships, could be forced to operate their
vessels below breakeven for a much longer period than feared as
top iron ore consumer China looks to cut down on imports.
China's iron ore imports may fall up to 14 percent this year
as domestic output ramps up, a mining industry group said on
Wednesday. The country buys about 60 percent of the world's
seaborne iron ore.
The commodity makes up for nearly half of the global drybulk
cargo that is transported by sea in vessels owned by companies
such as Genco Shipping & Trading Ltd , Excel Maritime
Carriers, Diana Shipping and DryShips.
"Decline in Chinese iron ore imports for 2012 would be a
highly negative development for the (larger) capesize markets,"
said Rahul Kapoor, a Singapore-based analyst at investment bank
RS Platou Markets.
The Baltic Exchange's main sea freight index, which
tracks rates for ships carrying commodities such as iron ore,
coal and grains, has fallen 84 percent from its highs in 2008.
"The market is still pricing in ore imports to continue
growing year-on-year, albeit at a slower pace than 2011 and help
capesize segment stage a recovery in 2H12 from the current
Capesize vessels, which commanded rates of more than $50,000
in their heydays of 2008, now manage just $6,000, below even
those earned by smaller and nimbler ships such as panamaxes and
"A company like Genco would be negatively impacted because
their contracts are mainly index linked. If Baltic dry index is
low, their earning will be low," Nordea Markets analyst Anders
Karlsen said, adding that DryShips could also be affected
because not all of its vessels are contracted.
Sales of second-hand capesize and panamax vessels have been
limited lately, as shipping companies were hoping that the
global steel market would rebound soon and spur iron ore demand.
That seems unlikely now with weak China imports.
RS Platou's Kapoor said weak freight rates now could lead to
a significant rise in scrapping of older ships and severe cash
flow problems for dry bulk owners.
Shipping companies are already facing the threat of seizures
of their vessels as banks lose patience with an industry
struggling with overcapacity and falling demand.
"We are facing a very severe situation in the dry bulk
market. Further tightening in the banking market will reduce
availability of funds to these companies," Rikard Vabo of
Fearnley Fonds said.