China seen as key for iron ore, shipping firms

PUBLISHED : Monday, 14 November, 2011, 12:00am
UPDATED : Monday, 14 November, 2011, 12:00am


China will remain the world's key iron ore market for mining companies and the global dry bulk shipping industry, despite concerns about the future of the country's infrastructure boom and an easing of foreign direct investment, shipping experts say.

'Fundamentally, I am bullish about China,' Ragu Raghunath, Noble Chartering senior executive vice-president, told a Hong Kong Shipowners Association meeting on Friday.

His views were echoed by Paul Cao Baoshu, a shipbroker with Arrow Asia, who pointed out that while mainland gross domestic product growth slowed in the third quarter to 9.1 per cent, generally growth had been 'very good' this year. And, Cao said, while the mainland's steel industry had started to see a slowdown, with price cuts and a reduction in capacity, Beijing would probably unveil a mini-stimulus plan next year.

Cao said mainland authorities would be keen to maintain social stability ahead of a possible government reshuffle and the annual meetings of the National People's Congress and the Chinese People's Political Consultative Conference.

He added that this would follow concern that fiscal measures to rein in the property market might have been too tough, and that the appreciating yuan had been deterring foreign investment.

Pointing to the shipping sector, Raghunath said that 2012 and 2013 would see a large influx of new dry cargo Capesize ships, typically above 180,000 deadweight tonnes (dwt), which haul iron ore and coal.

Clarksons, the British shipbroking house, estimated that there were 493 dry cargo Capesize ships, totalling 97.8 million dwt, on order for delivery from now to 2014 and beyond. In tonnage terms this was equivalent to 41.1 per cent of the existing fleet. Next year alone Capesize ships totalling 51.2 million dwt were due for delivery.

Raghunath said that what was more important was the size of the ship, with more very large ore carriers, of between 206,000-400,000 dwt, due for delivery in 2012 and 2013. With their substantial increase in cargo-carrying capacity compared with existing Capesize ships, the ultra large vessels would potentially reduce the total number of cargoes available to shipowners.

These ships included 19 400,000 dwt ore carriers that were ordered by Vale, the Brazilian iron ore producer, for the Chinese iron ore trade. Vale, which has chartered another 16 similar-sized ships, ordered the vessels so as to better control freight costs as charter rates for Capesize ships hit more than US$200,000 per day in 2007 and 2008 during China's infrastructure boom. But with Capesize rates down last week to US$31,000 per day there is speculation whether Vale will recover its US$2.3 billion investment in the 19 ships.

The arrival of the vessels has worried the China Shipowners' Association, which is concerned that Vale, BHP Billiton and other industrial shipowners could control the freight market in addition to iron ore prices. Cao said mainland shipowners had written to Beijing twice voicing their concern, and that authorities had banned the first iron ore delivery on the huge ore carrier Vale Brazil citing port-safety concerns. The ship was diverted to Europe where it offloaded its cargo, while subsequent cargoes were shipped on the mega ore carriers from Brazil to Sohar in Oman.

Faced with this opposition there have been suggestions that Vale will sell the ships either to mainland shipowners, such as China Ocean Shipping (Cosco) or China Shipping Development, or form a shipowning joint venture with these companies. Cosco's chairman, captain Wei Jiafu, said the vessels would be profitable in the long term, without being drawn into whether Cosco was in talks to buy the ships.

Cao said both Dalian and Qingdao had berths capable of handling the ships. He also thought small and medium-sized steel mills would welcome Vale and its vessels.


The plunge in international iron ore prices in the past month

- Prices are expected to stabilise after a moderate rebound