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China’s cold becomes shipping’s flu as slower demand hits rates

Logistic News - Published on Tue, 19 Feb 2019

Image Source: FreightWaves
Just as trucking spot rates are hitting two-year lows, ocean shippers are seeing rates hit similar lows amid a slowdown in China and upheavals in bulk commodity trade. The Baltic Dry Index, which measures rates across different dry bulk ships, sits at its lowest point since April 2016 and 65 percent below its August peak. The largest importer of seaborne iron ore and coal, China saw its economy grow at the slowest rate since 1990 last year with demand for iron ore also falling 1 percent.

The Lunar New Year also marks a traditional slowdown in trade in and out China. But this year’s slowdown is exacerbated by the collapse of a dam near a Brazilian mine, which resulted in 165 deaths. The closure of the mine, along with safety inspections of other dams, hits some 30 million tons of iron ore from Brazil, said Petros Pappas, chief executive officer of dry bulk shipping company Star Bulk Carriers Corp. (NASDAQ: SBLK), on the company’s fourth quarter earnings conference call.

China can source the iron ore from Australia, but the shorter sailing distance to China means lower earnings for ships. While only impacting about 1 percent of the world fleet, “it has a psychological effect as it happened during the slowest quarter of the year,” Pappas said.

China likewise is hindering imports of coking coal and other bulk commodities with up to 300 ships at one point said to be idling off the country’s coast waiting for customs clearance. While the Lunar New Year slowdown is the obvious cause, Pappas said the delays could portend a breakthrough in U.S.-China trade negotiations, as China may be looking to throw a sop to the U.S. side with imports of more coking coal. “If the China-U.S. trade war is over, China will have to import more from the U.S., so they are delaying coal imports to compensate with cargoes from the U.S. in case there is some agreement coming forth.”

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Posted By : Joykumar Irom on Tue, 19 Feb 2019
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