China, which imports more iron ore than the rest of the world combined, will buy a record amount this quarter, easing concern about the engine of global economic growth and extending a two-month rally in shipping rates.
Capesizes, carrying more ore than any other vessel class, will earn $12,000 a day in the first quarter, says Arctic Securities ASA, a bank in Oslo whose recommendations on shipping stocks returned 17 percent in a year. Investors may profit from that because freight swaps for the period are trading at $8,500. Fourth-quarter shipments will rise 5.5 percent from a year earlier to 188 million metric tons, according to the median of 11 analyst, trader and broker estimates compiled by Bloomberg.
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Iron-Ore Rebound Boosts STX With Record Chinese Imports
A conveyer belt dumps iron ore into a pile at an iron ore transfer and storage center operated by the Shanghai International Port Group in Shanghai, China.
A conveyer belt dumps iron ore into a pile at an iron ore transfer and storage center operated by the Shanghai International Port Group in Shanghai, China. Photographer: Qilai Shen/Bloomberg
Just two months after plunging iron-ore prices signaled China’s seven-quarter slowdown would worsen, the government’s $158 billion roads-to-sewers stimulus plan unveiled in September is boosting demand for the commodity and diminishing a glut in shipping. STX Pan Ocean Co. (028670), which has the highest proportion of Capesizes in its fleet among the five largest owners, will return to profit in 2013 after two years of losses, the median of analyst estimates compiled by Bloomberg show.
“We’re finally getting back into a period when the market isn’t so oversupplied,” said Jeffrey Landsberg, the managing director of Commodore Research & Consultancy in New York, who correctly predicted that shipping rates would rebound last month. “When we do have sharp increases in demand, Capesize rates can rise significantly.”
Maritime Routes
Earnings for the ships, each carrying about 160,000 tons of ore, jumped more than fourfold to $15,422 a day since the end of August, according to the Baltic Exchange, the London-based publisher of costs on more than 50 marine routes. While Arctic’s predicted first-quarter rate would be up 72 percent from a year earlier, it’s still below what most owners need to break even.
Capesize rates averaged $7,030 since the start of January, heading for the lowest annual figure since at least 1999, according to Baltic Exchange data. Earnings exceeded the $16,400 that Pareto Securities AS estimates owners need to break even in only 10 sessions this year.
The government in Beijing, which began a once-a-decade leadership transition last week, approved plans to build 1,254 miles of roads, nine sewage-treatment plants, five port and warehouse projects, and two waterway improvements. That coincided with central-bank pledges from the U.S. to Europe to Japan to do more to bolster growth.
Ore Exporter
Shares of Seoul-based STX Pan Ocean will advance 50 percent to 4,852 won in 12 months, based on the average of 16 analyst estimates compiled by Bloomberg. Rising demand for ore will also boost earnings for mining companies. Vale SA (VALE3), the biggest iron- ore exporter, will report a 13 percent gain in net income next year, the average of 12 predictions shows.
Ore at the Chinese port of Tianjin, a global benchmark, traded at $122.10 a dry ton on Nov. 12, from $86.70 on Sept. 5, according to The Steel Index Ltd., owned by McGraw-Hill Cos. Dry tons exclude moisture and are used to standardize cargoes. The price of steel reinforcement bars used in construction jumped 11 percent on the Shanghai Futures Exchange.
The fourth-quarter import estimates ranged from 182 million tons to 206 million tons. Purchases totaled 56.43 million tons last month, China’s customs bureau said Nov. 10 on its website, down 13 percent from a 20-month high reached in September. Imports fell in October in each of the last five years, customs data show. The country will ship in 184.5 million tons in the first three months of 2013, down from an all-time high of 187.2 million tons this year, the Bloomberg survey showed.
Consumption Growth
Chinese Premier Wen Jiabao cut the nation’s annual growth target to 7.5 percent in March, the lowest since 2004. HSBC Holdings Plc reduced its 2013 iron-ore forecast by 27 percent to $105 a ton on Oct. 12, citing weaker demand from the Asian nation. While China’s steel consumption growth will accelerate to 3.1 percent next year, from 2.5 percent in 2012, it will be slower than the 6.2 percent recorded in 2011, the Brussels-based World Steel Association estimates.
China COSCO Holdings Co., the country’s largest Capesize operator, will report a net loss of $168.1 million for next year, according to the mean of 23 analyst estimates compiled by Bloomberg. Shares of the Tianjin-based company will decline 8.3 percent in 12 months, the average of 25 predictions shows.
Dry Index
Earnings that reached a record $234,000 in 2008 spurred owners to order too many ships. The fleet expanded 91 percent since then as demand grew 23 percent, according to data from the Baltic Exchange and London-based Clarkson Plc, the world’s biggest shipbroker. The glut extends across most of the shipping industry. The Baltic Dry Index, a measure of costs across four vessel classes, fell 44 percent this year and rates for the largest oil tankers plunged 42 percent.
The International Monetary Fund cut its global growth forecast twice since July. The Washington-based group still expects the global economy to expand 3.3 percent this year and 3.6 percent in 2013. About 90 percent of trade goes by sea, the Round Table of International Shipping Associations estimates.
Morgan Stanley
Global fleet growth will slow to 4 percent in 2013, from 14 percent this year, Clarkson estimates. Demand for dry-bulk cargoes will gain 4 percent to a record 4.1 billion tons in 2013. Iron ore accounted for 69 percent of spot business on Capesizes in the past 12 months, according to Morgan Stanley.
Mining companies outside China are expanding output to meet demand, with an additional 174.6 million tons of production scheduled for 2013, from 30.8 million tons this year, according to data compiled by Kenneth Hoffman, a Bloomberg Industries analyst in Skillman, New Jersey.
Shares of Rio de Janeiro-based Vale will rise 28 percent to $22.99 in 12 months, according to the average of 21 analyst estimates compiled by Bloomberg. STX Pan Ocean will report net income of $1.8 million for 2013 after losing $221.3 million this year, according to the average of three estimates.
Container Ships
The three biggest Capesize owners are Nippon Yusen Kaisha K.K., Kawasaki Kisen Kaisha Ltd. and Mitsui O.S.K. Lines Ltd., according to data from Clarkson. Their fleets also include oil tankers and container ships.
China’s economy will grow 7.7 percent this quarter and accelerate in each of the next three periods, the mean of as many as 31 economist estimates compiled by Bloomberg show. Its iron-ore imports will rise 8 percent to a record 779 million tons next year, Clarkson estimates.
“The fear is Chinese growth will slow, and it will take the market time to work off the oversupply of ships,” said analyst Erik Nikolai Stavseth of Arctic Securities. “But with signs pointing to imports staying strong into next year, there’s reason to be optimistic about rates in the first quarter.”
While outstanding orders at shipyards are still equal to 18 percent of existing capacity, the worst is over. Builders had contracts equal to all the vessels already on the water in 2008, IHS Inc. data compiled by Bloomberg show.
The fleet contracted 0.6 percent last month, the first drop since November 2008. Owners will demolish carriers with record total capacity of 12.8 million deadweight tons this year, Clarkson estimates. Bangladesh, the world’s second-largest recycler, is running out of room for dismantling vessels, according to Global Marketing Systems Inc., the largest cash buyer of ships for scrap.
