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Why seaborne iron ore remains a highlight of the dry bulk trade

Xun Yao Chen

Dry bulk shipping investors' must-know mid-2014 overview (Part 2 of 8)

(Continued from Part 1)

Seaborne iron ore trade

Of all the major dry bulks, iron ore shipments make up the largest share of the total dry bulk trade (~30%). These ores are mainly shipped from Australia and Brazil, where rich and economical mines are concentrated, to China, where iron ore is used to make steel and would be used for manufacturing and construction purposes.

Higher year-over-year growth in iron ore seaborne trade has been a key driver behind the outperformances of dry bulk shipping companies such as Safe Bulkers Inc. (SB), Navios Maritime Holdings Inc. (NM), Star Bulk Carriers Corp. (SBLK), and Diana Shipping Inc. (DSX), as well as the Guggenheim Shipping ETF (SEA) in late 2013.

During the first quarter of the year, seaborne iron ore trade fell—but largely due to seasonality. Shipments are generally weak during the first half of the year, because the arrival of the wet season in Australia and Brazil tends to slow down iron ore production, which negatively impacts exports. China will also demand less, as its manufacturing and construction activity slows for Lunar New Year and as cold weather sweeps across the country.

Though shipments from Australia have surpassed the levels set at the end of 2013, shipments out of Brazil have yet to break out of their previous highs and have only recently shown signs of strength. This is important because shipments from Brazil take much longer to deliver than shipments from Australia. So if iron ore exports out of Brazil do rise out of their sideways trend for 2014, a much larger number of Capesize and Panamax vessels should be demanded, which would support shipping rates.

Year-over-year growth

Looking at year-over-year data, which is more important for dry bulk shipping investors, iron ore exports have remained robust. Brazil’s iron ore export growth has held above 0% for five consecutive quarters, and Australia’s iron ore export growth has been climbing since the second half of 2013. If this high growth can continue towards the end of 2014, shipping rates should benefit. But will they? Find out in the next part of this series.

Continue to Part 3

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