The importance of iron ore import
China iron ore import volume is a key factor that drives shipping rates. Iron ore accounts for ~30% of world dry bulk trade volume, and China makes up to three-quarters of the 30%. While import data is published a few weeks after each month has ended, it nonetheless reflects China’s economic health and demand for higher-quality imported ores. Since higher iron ore import means more demand, shipping rates will rise, which is fundamentally positive for dry bulk companies that haul key dry bulk materials such as iron ore, coal, and grain across the ocean.
Record iron ore imports
After falling from 68.56 million metric tonnes of imports in May to 62.30 in June, China boosted its import of iron ores to a record in July. Import came in at 73.14 million metric tonnes while year-over-year growth jumped to 26.39%. The six-month moving average annual growth increased from 5.10% to 7.75%.
The large increase in iron ore imports appears to be coming from Australia, which supplied record volumes in May and June. During the first quarter of 2013, the country supplied close to 50% of total seaborne iron trade. More exports are to be expected, as large mining firms that have access to low-cost mines are increasing their capacity to gain market share in the world this year. Historically, we’ve also seen a seasonal trend in iron ore trade increase during the second half of the year, driven by higher export volume out of countries in the Southern Hemisphere as production ramps up after the wet season.1
Iron ore imports to continue to grow
As we predicted as one of the more likely cases for the second half of this year (see our last article on iron ore imports), China’s government said it will try to maintain a stable growth rate throughout the rest of the year by accelerating public projects. This is likely part of the stimulus that was announced in 2012. So while investors were worried about whether growth would slow down and whether tapering in the United States would also create another round of fear, China’s import of iron ore should continue to grow at a healthy rate. July’s figures were positive for Capesize rates, in particular. Capesize vessels haul primarily iron ore and coal. This is positive for shipping rates of companies such as DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Partners LP (NMM), Navios Maritime Holdings Inc. (NM), and Safe Bulkers Inc. (SB).
- The rainy season typically occurs from December to March. ↩
- Part 1 - Why we continue to see a positive trend in dry bulk shipping
- Part 2 - Iron ore imports reach record in July, good for shipping stocks
- Part 3 - Why low iron ore inventory supports iron ore shipments
- Part 4 - Steel output trend remains positive for iron ore imports growth
- Part 5 - Rising steel and iron ore prices support dry bulk shipping firms
- Part 6 - Vessel orders show initial stage of shipping industry turnaround
- Part 7 - Construction falls, lower supply growth for dry bulk shippers
- Part 8 - Why Capesize vessels show the lowest annual supply growth
- Part 9 - Why Capesize vessels are outperforming other ship vessels in rates
© 2013 Market Realist, Inc.