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Dry bulk rates will withstand Sinosteel plan for agency role

ANALYSTS say freight rates for iron ore bulkers will not be affected by Sinosteel’s plan to implement an agency system for iron ore imports to curb speculative buying. Sinosteel said that it would strictly enforce the instructions of the China Iron & Steel Association designed to rein-in iron ore speculators, by which Sinosteel would expand its agency role of importing iron ore for local steel makers. While many iron ore traders stockpile ore and then sell the inventory back at a profit, the measures require ore traders to declare the destination of their inventory. Additionally, agencies will only be allowed to pocket commission fees, not the profit, from speculation.
Despite tightening market controls, an analyst at umetal.com told Lloyd’s List that it was unlikely to curb dry bulk freight rates, which have soared on the back of iron ore demand. “The anti-speculation measure does not have a direct relationship with freight rates,” the analyst said. “The freight rate primarily hinges on transportation volumes of iron ore.” He added that while AcrelorMittal recently reached an agreement with Vale over price cuts for its new iron ore contract, demand for iron ore shipments was expected to buoy freight rates. Daiwa Institute of Research (HK) analyst Geoffrey Cheng said the freight rate for bulkers carrying iron ore was decided by the business model of iron ore trading rather than market controls. “Most of iron ore is traded on spot prices instead of contract prices. An upswing of iron ore price will drive up the demand for bulkers.” According to the Ministry of Transportation, imports of iron ore at China’s major ports hit 258m tonnes in the first five months of this year, up 1.5% on the first half of 2008.

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