Why more steel supply and China’s support help dry bulk shippers

Market Realist

Why we're seeing mixed signals for dry bulk shippers like Navios (Part 7 of 11)

(Continued from Part 6)

Australia’s iron ore exports

As per the Bureau of Resources and Energy Economics, Australia seeks to increase its iron ore exports 19% to 687 million tonnes in 2014 as miners including Rio Tinto Group, BHP Billiton Ltd., and Fortescue Metals Group Ltd. boost their output. While that’s generally positive for dry bulk shippers, people question whether China can absorb all the supply.

China Crude Steel Production

China’s infrastructure spending

China recently announced plans to boost spending on infrastructure that would require more steel. China’s state council targeted 150 billion yuan ($24 billion) in bond sales in 2014 to build railways, mainly in the less developed central and western regions, and said it will expand plans to speed up construction projects after slowdowns in manufacturing, retail sales, and investment. China’s steel production report, which is released during the middle of each month, will give us a clear picture of China’s fundamentals for March.

As iron ore exports are expected to rise, reaching record high levels, we could say steel demand seems strong. This would support the Guggenheim Shipping ETF (SEA) and dry bulk shippers such as DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB), and Navios Maritime Partners LP (NMM) over the next few months.

Iron ore prices and dry bulk shippers

Not only is Australia boosting its iron ore output, but also, the world’s top producers in Brazil plan to increase their supply in 2014. However, the rate at which supply is rising is much higher than demand growth. So analysts are predicting a sharp drop in iron ore prices on the back of a widening surplus gap. With iron ore prices estimated to drop and demand levels either stable or rising, we can expect a positive impact on dry bulk shippers. Still, the following drivers in the next parts of this series will show some of the negatives that are currently affecting and expected to affect dry bulk shippers.

Continue to Part 8

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