Big ship rent rates sink amid slowdown

PUBLISHED : Thursday, 15 July, 2010, 12:00am
UPDATED : Thursday, 15 July, 2010, 12:00am

Concerns over the slowdown in the mainland's construction sector, posturing over ore price negotiations and a general summer slowdown have seen charter rates for large dry bulk ships go into freefall as iron ore cargoes evaporated.

Shipbrokers said a dearth of coal cargoes and an oversupply of large ships had also contributed to the slump in rental prices.

Charter rates for large dry bulk capesize vessels of around 180,000 deadweight tonnes are down to their lowest level for 14 months. The crash has been so swift that shipowners and operators have lost around US$270,000 in revenue in the past week on a voyage from Australia to China and more than US$800,000 on a Brazil to China voyage.

Shipowners would generate revenue of about US$1.17 million from an Australia-China voyage based on the prevailing rate yesterday, compared with US$1.44 million last Thursday.

Shipbrokers said rates for a large capesize vessel were on a par with those for a handysize ship that had a cargo carrying capacity that was almost six times smaller.

Observers thought the slump would continue until at least the end of August.

Shipbrokers said mainland iron ore traders had been largely absent from the chartering market for large vessels for the past two months. This became apparent after preliminary customs figures showed the mainland imported 47.17 million tonnes of iron ore in June, down 9.1 per cent from the 51.9 million tonnes in May and down 15 per cent from a year earlier. The May import figure was also 6 per cent down from April.

Customs said the mainland brought in 309.3 million tonnes of iron ore in the first six months of 2010, up 4.1 per cent from a year earlier.

Shipbrokers said the volume of iron ore imports was expected to slow further in July and August.

The spot iron ore market price has fallen to US$117.6 per tonne, down 37 per cent from the April peak and the lowest since December 2009 when it was US$112 per tonne. The iron ore spot price is expected to stabilise as it approaches US$100 a tonne, while analysts said it should be around US$120-$130 per tonne by the end of the year.

Brokers said mainland traders eased ore imports in an effort to pressure miners such as BHP Billiton and Rio Tinto to reduce the size of their anticipated price increase.

As well as being the slow season for dry cargoes, shipbrokers also said that about 100 capesize ships, totalling nearly 19 million deadweight tonnes had been added to the global fleet since the beginning of this year.

The increase, equivalent to about 10 per cent, had taken the number of operational capesize vessels to about 1,050, with another 90 ships due to hit the water between now and December, boosting cargo carrying capacity by another 10 per cent.

'In the current market there are not the cargoes to fill these ships even at current rates,' one broker said.

There has also been a fall in steel prices by between 300 and 600 yuan a tonne depending on the product.

The decline in mainland steel and iron ore prices is due to destocking rather than a serious deterioration in demand, according to Macquarie Research analyst Andrew Dale.

'It's mainly end users that are destocking inventories in anticipation of some weakness or of lower prices so there is a lower level of liquidity and as a result prices have dropped,' he said.

'But we haven't seen substantial deterioration in real demand.'

Falling steel prices and a decline in iron ore imports and in the spot price have stoked fears in some quarters of a protracted slowdown.

Macquarie Equities Research economist Paul Cavey said the slowdown in property sales would feed into softer construction growth towards the end of the year.

Expanding capacity

An oversupply of large ships has added to rental price pressures

The approximate number of capesize ships added to the global fleet since the beginning of this year is: 100

In deadweight tonnes, these new vessels amount to: 19m

The number of new vessels due to go into operation between now and December is: 90