Why we're seeing mixed signals for dry bulk shippers like Navios (Part 6 of 11)
Although record iron ore exports out of Port Hedland are generally positive for the Guggenheim Shipping ETF (SEA) and dry bulk shippers such as DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Holdings Inc. (NM), and Safe Bulkers Inc. (SB), you might wonder how much iron ore exports have to rise in order to push Capesize higher towards September and December 2013. (Capesize vessels are a class of large ship used primarily to transport iron ore and coal across the ocean).
Panamax and weather
In part, this is because weakness in Panamax vessels was, and is still, weighing down on Capesize rates. But it’s also important to note that iron ore shipments out of Australia were negatively affected by Tropical Cyclone Christine, which closed Rio Tinto’s port operations in Western Australia for three days at the end of 2013, while heavy rainfall disrupted operations in January and February.
Rio Tinto operates the Dampier and Cape Lambert ports near Port Hedland, which are used by BHP Biliton, Fortescue, and Atlas Iron. It wouldn’t be surprising if BHP Biliton and Fortescue were negatively affected by the cyclone too.
According to Rio Tinto’s first quarter shipment results, the company’s mines (including interests in mines that the company doesn’t own) produced ~66.4 million metric tonnes of iron ore during the first quarter of 2014. That’s a drop from the 70.4 million metric tonnes we saw during the fourth quarter of 2013. Analysts were forecasting production of 54.70 million metric tonnes on Rio Tinto’s shipments, according to a Bloomberg survey, but the company only produced 52.39 million metric tonnes during the first quarter.
Expansions are on track
As one of the largest iron ore producers, Fortescue Metals Group recently completed its expansion, and Rio Tinto says it’s still on track to expand its annual capacity to 290 million metric tonnes by the end of 2014 (with further plans to increase production to 340 million metric tonnes in 2015). So iron ore shipments are one positive thing going for dry bulk shippers.
Browse this series on Market Realist:
- Part 1 - Are dry bulk shippers like Diana Shipping caught in a sell-off?
- Part 2 - Will a sell-off weigh down dry bulk shippers like DryShips?
- Part 3 - Capesize rates and dry bulk shippers fall as iron ore prices rise
- Basic Materials Industry