Vale Pref (EU:VALE5)
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By Costas Paris
A slowing global economy, coupled with weak demand from China over the Lunar New Year and from Brazil after Vale SA's iron ore disaster, are dragging shipping rates to near record lows, and few in the industry expect things to improve any time soon.
Brokers in Singapore and London said capesize vessels, the largest ships that move bulk commodities like iron ore, coal and aluminum, were chartered in the spot market for as low as $8,200 a day on Thursday, a $500 decline from Wednesday. Break-even costs for carriers can be as high as $15,000 a day, and daily rates in the capesize market hovered above $20,000 last year.
"Everyone is looking for a catalyst to push the market up, but it's not there," said a Singapore broker.
The Baltic Dry Index, which tracks the cost of moving bulk commodities and is considered a leading indicator of global trade, is down more than 50% since the start of the year.
The long Lunar New Year holiday in early February is one of the slowest periods in commodities trading as factories in China, the world's biggest importer of raw materials, shut down. But ship executives say the bulk seaborne freight business is more broadly suffering from the lowest demand in two years, while China's trade tussle with the U.S. is making the market more volatile.
"A long slowdown in the Chinese economy will hurt commodity demand and send shipping rates sharply lower," Bloomberg Intelligence industry analyst Rahul Kapoor said.
The Vale iron ore disaster in Brazil in January, in which a mining dam burst, triggering a flood that killed at least 150 people and left close to 200 more missing and feared dead, created a new source of uncertainty.
Vale has suspended production at a number of sites, removing 40 million tons of annual output, or 11% of the giant miner's total production in 2017.
The reduced sailings could affect dry bulk owners, including China Cosco Bulk Shipping Co. Ltd, Norway's Golden Ocean Group and Greece's Diana Shipping Inc.
"The Vale void will be largely covered by iron ore shipments out of Australia," the Singapore broker said, "but Brazil generally commands higher freight rates so there is no good news."
China has resumed importing soybeans from the U.S., a sign of progress in talks between Washington and Beijing. But the 540,000 metric tons of shipments from the U.S. in January were less than half the monthly average last year.
"If you are a bulk owner, you can no longer depend solely on China to make money, and that's a seismic shift," said a London broker.
Write to Costas Paris at email@example.com
(END) Dow Jones Newswires
February 07, 2019 12:40 ET (17:40 GMT)
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