Why China is important to the dry bulk shipping industry (Part 8 of 9)
The importance of iron ore import
China’s iron ore import is a key indicator that affect shipping rates. Iron ore accounts for ~30% of world dry bulk trade volume, and China makes up to three-quarters of the 30%. While the data is published a few weeks after each month has ended, it nonetheless reflects China’s economic health and fundamentals of dry bulk shippers. Since higher iron ore import means higher shipping rates, it’s fundamentally positive for dry bulk companies that haul key dry bulk materials such as iron ore, coal, and grain across the ocean.
August import fell
Iron ore imports have risen lately due to increased export from Australia. During the first quarter of 2013, the country supplied close to 50% of total seaborne iron trade. In August, China imported 69.01 million mt (metric tonnes) of iron ore. This was a 4 million decline from 73.14 million that was imported in July. On a year-over-year basis, growth slowed from 26.39% in July to 10.50%. Using a three-month rolling average to smooth out volatility and short-term noise, year-over-year growth increased from 13.5% to 14.6%.
Import data lags shipping rates
August’s weaker import appears to be driven by rising iron ore prices in July and the first half of August. It may be on investors’ minds why imports fell despite higher shipping rates. This is because the custom records import when vessels arrive at Chinese ports, but shipping rates rise or fall when ships are demanded for export. As it can take a few weeks to ship iron ore from Australia or Brazil to China, China’s import volume lags a little.
Expect increased imports
Based on the recent increase in shipping rates, we should expect China to report record volumes of iron ore imports in September. Larger volumes of Australian and Brazilian exports should kick China’s iron ore imports into record highs. In the past, iron ore trade has shown seasonal increases during the second half of the year, as production of dry bulks ramps up after the wet season (the rainy season that typically last from December to March). The past few months of positive growth also suggests traders aren’t expecting significant deterioration in economic growth like the deterioration we saw in 2008.
As long as China’s iron ore imports continue to grow, this is positive for Capesize rates and share prices of companies such as DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Partners LP (NMM), Navios Maritime Holdings Inc. (NM), and Safe Bulkers Inc. (SB).
Browse this series on Market Realist:
- Part 1 - Why China’s industrial activity is important to dry bulk shippers
- Part 2 - A jump in crude steel output is positive for dry bulk shippers
- Part 3 - Building sales cool, next month’s data big for dry bulk shippers
- iron ore