From Goldman Sachs Tim Read
Recent weakness in BDI has stemmed from a quiet period in fixing mainly Brazilian Iron Ore cargoes and easing in Chinese Port congestion. With more coal going East not West out of South Africa the number of ships in the Pacific Basin has increased and while this tightens the Atlantic basin we have not see sufficient Brazilian cargoes to support the overall market. We have also seen more new builds enter the market and these are all in the pacific.
All that being said Vale are looking to bring out some more cargoes which should help support the market. We are entering the time of year soon where we will start to see USG grain exports and coal for winter heating. Chinese Iron Ore and steel prices are only going up and demand for steel there seems unstoppable. The new builds are about 40% behind the delivery schedule so fleet growth not as bad as initially feared at the beginning of the year. European steel mills are slowly looking like they are coming back as Ore stocks are drawn down. Looking at the BDI vs just about everything else; Aus Dollar, Asian Equity and other commodities BDI looks underpriced. So the big question is whether the BDI is a leading indicator or just on a temporary blip down. I'm leaning towards the latter as feel the above bullish factors will bring the dry market back up. The rate of decline in the spot freight rates has eased and could easily see a tick up from here.
Recent weakness in BDI has stemmed from a quiet period in fixing mainly Brazilian Iron Ore cargoes and easing in Chinese Port congestion. With more coal going East not West out of South Africa the number of ships in the Pacific Basin has increased and while this tightens the Atlantic basin we have not see sufficient Brazilian cargoes to support the overall market. We have also seen more new builds enter the market and these are all in the pacific.
All that being said Vale are looking to bring out some more cargoes which should help support the market. We are entering the time of year soon where we will start to see USG grain exports and coal for winter heating. Chinese Iron Ore and steel prices are only going up and demand for steel there seems unstoppable. The new builds are about 40% behind the delivery schedule so fleet growth not as bad as initially feared at the beginning of the year. European steel mills are slowly looking like they are coming back as Ore stocks are drawn down. Looking at the BDI vs just about everything else; Aus Dollar, Asian Equity and other commodities BDI looks underpriced. So the big question is whether the BDI is a leading indicator or just on a temporary blip down. I'm leaning towards the latter as feel the above bullish factors will bring the dry market back up. The rate of decline in the spot freight rates has eased and could easily see a tick up from here.
And more:
This picture shows the total amount of iron ore held in all Chinese ports. So this is a very interesting measurement of Chinese stockpiles. The units below represented in the figures are 10,000 tons. This is released weekly on Mondays for the previous Friday, so it is very timely info. As you can see this number, which has apparently only been released since mid 2006, that iron ore (the key component for steel production) stockpiles have almost breached the level of their last peak reached in 5Sep2008, just before Lehman. So sure, the stockpiles could bolt to all time new highs, but more realistically warehouses are probably pretty full and that is why the Baltic Dry Freight Index has plummetted 37% of late in expectation of less demand to ship more iron ore (and other commodities) to China.
This picture shows the total amount of iron ore held in all Chinese ports. So this is a very interesting measurement of Chinese stockpiles. The units below represented in the figures are 10,000 tons. This is released weekly on Mondays for the previous Friday, so it is very timely info. As you can see this number, which has apparently only been released since mid 2006, that iron ore (the key component for steel production) stockpiles have almost breached the level of their last peak reached in 5Sep2008, just before Lehman. So sure, the stockpiles could bolt to all time new highs, but more realistically warehouses are probably pretty full and that is why the Baltic Dry Freight Index has plummetted 37% of late in expectation of less demand to ship more iron ore (and other commodities) to China.
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