Dry bulk market faces uncertainty
A combination of factors such as low iron ore volumes from Brazil and uncertainties about the coronavirus in China is leaving the dry bulk market in dire straits. The Baltic Dry Index has fallen to the lowest level since April 2016
The average weighted capesize time charter on the Baltic Exchange is being assessed at $4,631 per day, well below operating costs. Of all the dry bulk segments, handysizes are faring the best
THE dry bulk market is in dire straits amid concerns about potential low iron ore exports from Brazil and the coronavirus in China, which may affect imports.
Heavy rains in the iron ore-rich Belo Horizonte region of Brazil are raising fears about Vale’s ability to ramp up output as per its guidance following the deadly Brumadinho dam disaster a year ago.
Vale said it activated level 2 of its emergency action plan at the Sul Inferior dam in Minas Gerais after recent heavy rains eroded part of the inner reservoir structure. The miner added that the structure remained stable.
In addition, an extended holiday break for Chinese New Year was likely to crimp demand.
There has been a huge impact on sentiment and demand, said a European charterer, who noted that lower coal volumes from Australia were also a factor in the softening market.
Widespread bush fires in eastern Australia have reportedly been having an impact on coal operations. That may well continue into the second quarter.
Jefferies analyst Randy Giveans said he expected rates to remain under pressure owing to seasonal factors such as a slowdown around Chinese New Year.
“Economic activity in China tends to pick up after the lunar new year, although this may be negatively impacted by the spread of coronavirus in Asia,” he said.
“While we believe the Chinese will continue to prefer high-quality imported iron ore and coal, there is uncertainty around how quickly Vale will be able to increase its iron ore production during ongoing safety investigations of its operations.”
The average weighted capesize time charter on the Baltic Exchange slumped to $4,631 per day at the close on Tuesday, the lowest since April. That compares with $11,976 on January 2 and $12,523 a year ago.
All segments noted a decline, leading the Baltic Dry Index to slump to 539 points, the lowest since April 2016.
Handysizes fared the best of all the segments, assessed at $6,295 per day on the Baltic Exchange.