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Dry bulk shipping weekly analysis (Part 7: Australia’s exports)

Continued from Part 6

Australia: The commodity giant

Australia, one of the world’s most natural resource–rich countries, has become one of the largest commodity giants over the past decade, on the back of China’s golden age investment-led economic growth of 10% each year. Accounting for close to 50% of total iron ore shipments to China—as well as a percentage of total iron ore seaborne export—Australia’s iron ore export volume is a key indicator of dry bulk shipping demand. When Australia’s iron ore export volume grows at a rapid pace, it means more business for shipping companies, which bids up shipping rates. On the other hand, if export volume stagnates or falls, it will negatively affect shipping rates.

Australian Iron Ore Export to China 2013-08-11Enlarge Graph

Australia pushes ahead with larger export

Although the market has fallen due to China’s tolerance for lower economic growth since the start of the year and experts widely agree that China’s economy will never grow as fast as it did before the financial crisis, Australian iron ore producers haven’t slowed their production and shipments. Instead, they just exported a large amount (36.5 million metric tonnes) of iron ore in June—close to the record amount of 37 million metric tonnes of iron ore in May. The average iron ore import (using the last six months of data) rose from 33.4 million in May to 33.5 million in June. On a year-over-year basis, export rose by 30% (see the chart below).

Australian Iron Ore Export to China 2013-08-12Enlarge Graph

Capacity addition to support export volumes

Analysts predict export from Australia to increase further, as they expect the country to add approximately 100 million metric tonnes of capacity this year—half of which Rio Tinto will supply. That’s an extra 8 million per month. During the last quarter of 2013, Australia exported an average of ~45 million tonnes of iron ore per month. A maximum increase of 8 million tonnes of iron ore monthly should add roughly 17% annual growth to Australian iron ore exports towards the end of this year. In Diana Shipping Inc. (DSX)’s latest earnings call, it announced that it expects iron ore trade to increase by 10% in 2013.

Since Australia’s iron ore export makes up ~13.5% of the world’s total dry bulk shipments, a 17% increase will add ~2.3% to global dry bulk shipping trade volume. This will have a positive impact on shipping rates—Capesize vessels in particular—which dry bulk shipping companies such as DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Knightsbridge Tankers Ltd. (VLCCF), Navios Maritime Partners LP (NMM), and Safe Bulkers Inc. (SB) will benefit from.

Learn more about the key performance indicators of the dry bulk shipping industry

Continue to Part 8: Shipping rates, or go back to Part 1 for the list of indicators.