The smallest profits in the commodity shipping market in 18 months may be ending as a rebound in steel and iron-ore prices signal improving Chinese demand that will ease the transport glut.
Chinese steel prices rose 4.7 percent last week, the most in 11 months. Derivatives for fourth-quarter iron-ore prices jumped 23 percent between July 9 and 21, Deutsche Bank AG said. Costs for leasing capesize ships used to carry iron ore will average $30,375 a day in the fourth quarter, from $12,755 now, according to the median in a Bloomberg survey of 18 analysts.
Expectations for higher shipping costs suggest the 78 percent plunge in capesizes since June 2 doesn’t point to a new global economic slump. While last month’s Chinese steel output was the smallest since February, the nation still accounted for 45 percent of global supply. Three consecutive months of lower iron-ore imports may mean mills are running down inventories.
“This is hand-to-mouth stuff,” said Stuart Rae, London- based co-managing director of M2M Management Ltd., a $450 million hedge fund group that operates ships and trades freight derivatives. “By the fourth quarter, stockpiles will have been depleted to a point that, strategically, they will want to try and build them up,” said Rae, who correctly predicted a decline in shipping rates at the end of 2008.
Source: Bloomberg
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