Shipping Rates Seen Falling 50% as China Cuts Commodity Imports

Discussion in 'Economics' started by ASusilovic, Aug 31, 2009.

  1. Aug. 31 (Bloomberg) -- Just as global trade starts to recover, the shipping market is crashing for the second time in a year as China reduces raw-material imports and record numbers of new vessels set sail.

    The rate for leasing capesize ships, boats three times the size of the Statue of Liberty, will drop about 50 percent from the current price of $37,865 a day to as low as $18,000 before the end of the year, according to the median in a Bloomberg survey of six analysts and fund managers. Forward freight agreements traded by brokers show the fourth-quarter average price will be 7 percent lower.

    Shipping rates, which already fell 59 percent from this year’s high, are retreating as the Organization for Economic Cooperation and Development predicts a 16 percent drop in world trade for all of 2009. China’s State Council called for curbs on steel and cement production last week. A record 146 capesizes will be added this year, equal to 28 percent of the fleet, according to Fearnley Consultants A/S.

    “The pressure of the new ships will be overwhelming,” said Andreas Vergottis, the Hong Kong-based research director at Tufton Oceanic Ltd., which manages the world’s largest shipping hedge fund, with $1 billion of assets. “It will take a lot of time and a lot of pain before shipping recovers.”

    The biggest-ever order book for new carriers, according to Lloyd’s Register-Fairplay, may hurt profits at shipping lines while providing higher returns for traders. Rates for capesizes have fluctuated more than 50 percent in seven of the past eight years.


    Iron-Ore Purchases

    Imports of refined copper fell 23 percent in July from the previous month. Coal shipments shrank 13 percent, customs data show. Iron-ore purchases will likely average about 16 percent less in the remainder of the year than in the first seven months, according to Will Fray, an analyst at Maritime Strategies International Ltd. in London.

    “China could very easily turn the taps off,” Fray said. “Rates will keep sliding.”
  2. Interesting how copper imports fell 20%+ but the price kept ascending... Is it all funds doing it? Or is it resurgent demand from other economies?

    Time will tell. China's not the only player in the game.