Baltic Dry Index Keeping Iron OreMiners Afloat

AS OF 08:03 EDT

These are nervous times for iron ore producers.

Fortescue Metals, the fourth-largest miner of the steel-making material, starts to lose money if prices at Chinese ports fall below $39 a metric ton. After a 37 percent drop this year, Metal Bulletin’s benchmark is now just 16 cents above its record-low $44.59 a ton.


So it’s no surprise the Australian company’s chief executive officer, Nev Power, is pulling every lever to keep his red dirt in the black. He’s reducing the cost of mining, processing and then hauling the ore to port to $15 a ton from its current $18 a ton, according to a presentation last month. Interest expenses add another $4 a ton, so Fortescue announced Nov. 10 a tender offer aimed at paying back as much as $750 million ofdebt early.  Beyond that, he’s looking at developing a joint venture with Baosteel and Formosa Plastics to produce magnetite, according to Bloomberg’s David Stringer. That variety of iron ore requires costly processing but attracts a higher price and a lower government royalty tax than the hematite Fortescue mines at present.

One unexpected benefit comes from the Baltic Dry index, a benchmark for the cost of hiring freight ships that dipped below 500 on Friday for the first time since it started in 1985. When China’s industrial demand was strong, the cost of both raw materials and the ships used to transport them soared. Now that it’s slumping, commodity prices and ship rates will have to fall to clear supply gluts built up during the boom.

Looking at the cost of hiring a Capesize ore carrier gives you a sense of the benefit:

Flat Iron
The cost of hiring a large ore carrier has been slumping
Source: Baltic Exchange

Fortescue probably pays more than the current spot rate so as to reserve its cargo space and lock in prices for months at a time, but the benchmark is a good guide to the general direction of its expenses. A Capesize vessel carrying up to about 170,000 metric tons of iron ore will spend some 30 days making the round trip to deliver its cargo and get back to port, judging by the last voyage of the Bulk Prosperity, a bulker owned by China Development Bank that anchored off Australia’s Port Hedland on Monday after returning from Qingdao.

At current rates of $4,713 a day, transport on the spot market for the whole voyage would come to about 83 cents a metric ton on a fully laden ship. 12 months earlier, the day rate was $22,192, and transport was $3.92 a ton. When you’re only making $5.75 a ton of profit, as Fortescue is now, that’s a significant difference.

There’s potentially a virtuous circle here for iron ore producers. With operating costs for a capesize vessel averaging about $7,400 a day, according to consultancy Moore Stephens, shipowners are mostly losing money at current rates. But the alternative is less attractive these days, too. Thanks to that glut of iron ore, breaking up a ship and turning it into steel scrap only nets about half what it did a couple of years ago:

Breaking Up Is So Very Hard to Do
Low scrap prices are making it more difficult to remove ships from the market
Source: Metal Bulletin

That may keep more vessels on the market and ensure shipping costs stay lower for longer, helping iron ore miners stay in the black.

Don’t get too comfortable. Companies only book a ship if they have real cargo to move, so there’s no speculative activity in the Baltic Dry to take the edge off price swings. The index almost doubled during June and July and Capesize rates were above $14,000 a day as recently as September. Fortescue’s cushion is thin enough now that even a small spike could leave investors feeling sore.


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Baltic Dry Index At New Low : Shipping Sector Sinking Lower

LONDON, Nov 20 (Reuters) – A slump in dry bulk shipping is set to worsen as the meltdown in global commodities and too many ships free for hire rock the sector used by investors to gauge the health of world trade.

Slower coal and iron ore demand from China – the world’s biggest industrial importer – have battered the dry bulk sector, already in the midst of its worst ever downturns that is expected to extend well into next year.

This week the Baltic Exchange’s main sea freight index , which tracks rates for ships carrying dry bulk commodities and seen by investors as a forward-looking indicator of global industrial activity, plunged to an all-time low.

A slump in oil and other commodity prices, due to slowing Chinese demand, has widely been seen as one of the reasons for U.S. Federal Reserve hesitancy in tightening policy.

“Dry bulk demand is very much dependent on the world economy,” said Symeon Pariaros, chief administrative officer of Athens-run and New York-listed shipping firm Euroseas.

“The slowdown in the world economy has caused both dry bulk and container shipping to suffer a lot lately. Euroseas, having exposure in both these sectors, is facing the consequences of this very low rate environment.”

There have already been casualties. In September, Japanese bulk carrier Daiichi Chuo Kisen Kaisha filed for protection from creditors. This followed private equity backed Global Maritime Investment Cyprus Ltd, which filed for Chapter 11 bankruptcy protection in the United States.

While prospects for commodities markets are shaky, the dry bulk freight players will also need to contend with more ship deliveries hitting the water in coming months.

“More vessels have to be scrapped, no additional newbuildings (new ship orders) and further delay deliveries – all these take time, more than one year, implying that in the interim the market will be ugly, and a great number of shipowners will not have the cash to bridge the weak market,” said Basil Karatzas, head of New York consultancy and brokerage Karatzas Marine Advisors & Co.

“Some may be flexible to get money from funds for working capital … and otherwise sacrifice some equity to save the business, but many small shipowners will be washed out.”

Baltic Dry Index Could Test Lows: Dry Bulk Shippers Continue To Suffer

Wall Street and Hell © Dave Granlund,,Wall street, hell, stock drop, stocks drop, wall st plunge, stock market, wall st losses, low stocks

I have written many times over the exit of the managed accounts from the shipping sector.

The volume of email ( deniers ) are second only to opposition to my position to sell/ avoid  Chesapeake at $22 .

I want to recommend a new article at Seeking Alpha from James Catlin

Baltic Dry Index Could Test Lows:


Following a brief rally, which provided some much needed relief to dry bulk shippers, the Baltic Dry Index again finds itself sinking amid a worsening macro-economic backdrop.


Jack A. Bass Fearless 2016 Forecast:

(Please recall that at its height the Baltic Dry Index was over 10,000 and NOW it is at 700 )

Our AVOID list includes the sector –   DRYS, DSX, GOGL, NM, NMM, SALT, SB, SBLK, SFL

Avoid Chesapeake Energy

Avoid GOLD

Avoid Natural Gas

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A glut of vessels and stalling cargo growth until 2020 : Goldman Sachs Group Inc.

The World Shrinks for Goldman as Commodity Rout Snares Ships

The collapse in global rates for shipping commodities from the world’s mines to mills and utilities will persist until at least 2020 on a glut of vessels and stalling cargo growth, according to Goldman Sachs Group Inc.

The extended slump is set to intensify competition in the iron ore and coal markets, benefiting the biggest, low-cost suppliers, analysts Christian Lelong and Amber Cai wrote in a report. Higher-cost producers may suffer, they said.

The Baltic Dry Index, a measure of shipping commodities including coal, iron and grains, sank to a record in February amid the fleet surplus and slowing demand for cargoes to China. The country’s transition from investment to consumption, together with a shift toward cleaner energy, caused a sharp slowdown in the dry-bulk trade, Goldman said. At the same time, shipyards churning out carriers find they are adding unwanted capacity into an oversupplied market, according to the bank.

“From the iron ore pits of Western Australia and Brazil’s Sudeste to the coal pits of Indonesia and South Africa, mining companies have experienced the end of the bull market in commodities,” Lelong and Cai wrote in the report dated May 6. “Now the shipping industry is feeling the impact.”

The daily charter rate for a Capesize vessel slumped below $10,000 from a peak of more than $100,000 in 2008, according to Goldman. Lower rates will combine with cheaper fuel to spur a period of cheap freight until enough older vessels are scrapped to balance the market, probably after 2020, the bank estimated.

Smaller World

“When transportation is cheaper and distance matters less, the world appears to be smaller and goods can travel further,” the analysts wrote. “The world has shrunk.”

Goldman cited slumping rates for hauling iron ore from Western Australia to China, described as the busiest dry-bulk trade route in the world. The cost of shipping one ton sank from $44 at the peak in early 2008 to $4.40 a ton, it said.

Global demand for seaborne iron ore, thermal and coking coal may expand only 2 percent this year, down from an average of 7 percent between 2005 and 2014, Goldman said. After that, trade-volume growth will stall to 2018, it forecast.

China’s slowing growth contributed to declines in bulk-commodity prices. Iron ore sank to a decade-low at the start of April as Rio Tinto Group and BHP Billiton Ltd. boosted low-cost output into an oversupplied market. GlobalCoal’s Newcastle thermal price, a benchmark index for the Asia-Pacific, fell in April to the lowest level since 2007.

The utilization rate of the dry-bulk fleet will drop from about 90 percent in 2008-2010 to 70 percent from this year to 2019, Goldman said in the report, which focused its analysis on iron ore and coal cargoes and the larger Capesize and Panamax vessels. Order books at shipyards will ensure that vessel capacity will continue to grow until 2017, it said.

“Faced with the risk of leaving vessels idle over long periods, we believe that shipowners will continue to charge low charter rates,” the analysts wrote. “We expect low freight rates to persist at least until the end of the decade.”

Protect your portfolio profits

The Dry Shipping Picture May Be Even Worse Than You Think


I want to recommend a new article on Seeking Alpha – the analysis shows our continuing belief this is a sector to watch NOT purchase.

Here is a sample from the article:

The supply glut continues to plague dry shipping –

. Too many ships are simply chasing too few cargoes. One Singapore broker bleakly stated, “The market is flat as a pancake. It’s going to be like this going forward – it’s hard to see a way out.” The rates, even despite the modest rise last week, continue to be below even operating costs for most ships especially for the large Capesize ships. Basic economics teaches us that should one day correct but when?

Chief Shipping Analyst at BIMCO, Peter Sands, stated last week,

“What we have seen in shipping in recent years and is going to experience more in future is the knock-on effect from China becoming a relatively more closed economy, driven forward by domestic demand rather the foreign demand like i.e. the US. In short this translates into a lower level of shipping demand going forward than what we got accustomed to during the past decades”

Article link:

Tanker Industry Review : The Market Realist



I want to recommned a great series of articles on the Tanker/ Shipping sector  from The Market Realist


here is a sample


The Dynamics of the Crude Tanker Industry
By Katie Dale • Apr 1, 2015 2:38 pm EDT
Oil prices impact crude industry

A February rebound in oil prices couldn’t hold on, and prices resumed their downward trend amid concerns over rising commercial crude stocks in the United States. Since late 2014, stocks have been increasing despite a falling number of oil rigs drilling in the United States.

Brent crude is trading at $55.11 as of March 24, 2014, down 7.3% from the previous month’s levels. Industry analysts believe that with falling oil prices, a crude tanker boom, albeit a short-lived one, surely exists.
Crude industry
Enlarge Graph
The performance of oil tanker operators such as Nordic American Tanker (NAT), Capital Products Partners L.P. (CPLP), Tsakos Energy Navigation Ltd. (TNP), Frontline Ltd. (FRO), and Teekay Tankers Ltd. (TNK) have a direct correlation with the crude tanker industry. The PowerShares DB Oil Fund (DBO) is an industry ETF that tracks the performance of crude oil.

Dynamics of the crude tanker industry

In the current shipping industry, the tanker market is on the greener side compared to the dry bulk market recovery. Teekay Tankers commented in its 4Q14 quarterly update, “The outlook for crude tanker fleet utilization and spot tanker rates is expected to remain positive in 2015 based on a shrinking mid-size crude tanker fleet and a continued increase in long-haul tanker demand as more crude oil moves from the Atlantic to Pacific basins. The impact of low prices and the development of floating storage in the first quarter of 2015 are also expected to support positive tanker demand in the first half of 2015.”

What’s in this series?

In this series, we’ll look at the factors that drive the crude tanker industry and affect the performance of tanker companies. Before we begin the important indicators, we’ll look at the Baltic Dirty Tanker Index. Among indicators, we’ll take a look at China’s crude imports and auto sales, Canadian crude exports to the United States, and others.

CPLP $9.90 $0.02 0.20%
DBO $14.00 $0.01 0.07%
FRO $2.84 $0.21 7.99%
NAT $12.60 $0.10 0.80%
TNP $8.97 $0.06 0.67%



Crude Tanker Indicators Amid Fluctuating Oil Prices (Part 2 of 10)
Baltic Dirty Tanker Index on the Decline
By Katie Dale • Apr 1, 2015 2:39 pm EDT
Baltic Dirty Tanker Index

The Baltic Dirty Tanker Index is followed by analysts and money managers in order to assess the revenue and earnings potential of the crude oil shipping industry. How the Baltic Dirty Tanker Index performs, especially its year-over-year growth, is one factor that has significant implications for companies such as DHT Holdings Inc. (DHT), Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), and Nordic American Tanker Ltd. (NAT). The PowerShares DB Oil Fund (DBO) is an industry ETF that tracks the performance of crude oil.
Baltic dirty index
Enlarge Graph
On a year-to-date basis, the Baltic Dirty Tanker Index declined 13.1% to 769 on March 20, 2015. On a year-over-year basis, the index recorded an 8.2% increase.

Big Oil’s Push to Replace Coal : Coal Mining and Shipping Sectors At Risk

BP Plc coined the slogan “Beyond Petroleum.” The new industry mantra might be “Beyond Oil and Into Gas.” Oh, and while we’re at it, “Down With Coal.”

Consider Royal Dutch Shell Plc’s recent $70 billion acquisition of BG Group Plc — clearly a huge bet that natural gas will prove to be its cash cow of the future.

The petroleum industry’s move toward gas is hardly new — the hydraulic fracturing shale revolution is in its second decade, after all. Still, Shell’s move is an emphatic confirmation that some among the Big Oil family firmly believe gas will play a growing role in meeting the energy demand of emerging countries such as China and India that are trying to move away from dirtier coal.

“Gas will likely overtake coal as the world’s second fuel by the late 2020s,” said Jonathan Stern, head of the natural gas program at the Oxford Institute for Energy Studies.

Gas is emerging as a preferred fuel around the world because it’s cleaner to burn than coal and oil, prompting the International Energy Agency to say in 2011 that the world was entering into the “golden age of gas.” In a highly symbolic move, China announced last month it would convert the last of four major coal-fired power plants around Beijing to gas next year.

Last September, in a petroleum industry meeting timed to a United Nations session on global warming, some of the world’s leading producers got up to argue that gas gave them a huge advantage over coal in the climate-change battle, according to the website Responding to Climate Change.

“One of our most important contributions is producing natural gas and replacing coal in electricity production,” said Helge Lund, then chief executive officer of Statoil ASA, citing figures that switching from coal to gas could halve global emissions.

Fast Growing

Until recently, coal was the world’s fastest-growing major energy source, averaging a 5 percent annual rate. The Paris-based IEA forecast the rate would slow down to 1 percent from 2012 to 2020, and decelerate further to 0.3 percent in the 2020s as China and other emerging countries battle pollution.

Shell CEO Ben van Beurden said in February that “a shift from coal to natural gas” was needed to battle climate change. “When burnt for power, gas produces half the CO2 coal does,” he told an industry audience.

For Shell, this is the second gas-focused deal in so many years. In early 2014, it bought the liquefied natural gas business of Spain’s Repsol SA for $4.1 billion. The Anglo-Dutch group is not alone betting on gas: Chevron Corp., BP, Total SA and Exxon Mobil Corp. are spending heavily on the fuel.

Gas Focused

Trevor Sikorski, head of natural gas, coal and carbon for consultant Energy Aspects Ltd., said companies were “starting to recognize” a trend in emerging markets in favor of gas and against coal. “This deal potentially kicks off acquisitions of other gas-focused companies the size of BG or maybe smaller,” he said. Among the potential candidates, analysts are looking at Woodside Petroleum Ltd. and Santos Ltd. of Australia, U.S.-based Devon Energy Corp. and Noble Energy Inc., among others.

The bet on gas has been extremely profitable so far for Shell. The company reported underlying earnings of $10.4 billion in 2014 from gas, up 470 percent in five years.

But it has its risk, nonetheless. First, LNG prices have dropped about a quarter from the torrid levels reached after Japan bought large quantities of the fuel following the 2011 nuclear crisis of Fukushima. The price drop will hurt profits.

Coal Prices

At the same time, coal prices have fallen to levels not seen since the global financial crisis, providing cost-sensitive countries, including India, a strong reason to keep buying. BP CEO Bob Dudley last June warned that with coal prices falling, the commodity was “extending its competitive edge in power generation” over gas.

Second, the shift from coal into gas depends in a great part on climate change negotiations of uncertain outcome.

And third, analysts worry that energy companies would struggle to keep construction costs under control, jeopardizing the future of the LNG sector.

If Big Oil is successful in its push toward gas at the expense of coal, those most at risk will likely be global mining groups including Glencore Plc, Anglo American Plc and Rio Tinto Group with billions of dollars in coal deposits in South Africa, Australia and Colombia.