The significance of Brazil’s iron ore export
As home to one of the largest mining companies, Vale S.A., and the second largest iron ore exporting country with ~25% market share of global iron ore trade volume, shipments out of Brazil are a key metric to watch. Higher export volumes have a positive effect on shipping rates, which are a critical variable that moves dry bulk shipping companies’ revenues, earnings, cash flows, and share prices. However, when iron ore export isn’t growing as fast, it reflects weak demand for dry bulk ships. So shipping companies could be negatively affected.
Iron ore shipments on the rise
In August, Brazil exported a significant amount, 31.2 million mt (metric tonnes), of iron ore. This is an increase of 4.94% from July’s volume of 29.7 million mt. On a year-over-year basis, however, iron ore shipments grew 13.19%, which is up from 8.97% in September. Could iron ore export growth be picking up momentum? Possibly.
Seasonal trends in iron ore shipments
Exports volumes out of countries like Brazil and Australia are subject to seasonality. During the first few months of the calendar year, these countries enter a “wet-season,” when they typically face heavy rain and floods. Such poor weather can temporarily bring mining operations to a halt, which can negatively affect iron ore prices and shipments.
During the second half of the year, export volume typically rises as these mining companies finish their expansions and Chinese mines start to close down for New Years. Knowing that Australia and Brazil’s supply could fall during the first few months of the year, traders would also increase shipments before that.
Brazil lost market share to Australia
Over the past few years, iron ore shipments out of Brazil have fallen in growth. While shipments grew 10% to 15% year-over-year before 2011, they fell to close to zero last year. Uncertainty surrounding Brazil’s mining law (the possibility of higher tax) had kept producers away from increasing capacity, while the shorter distance between Australia and China had made Australian producers much more competitive. While Brazil made up ~34% of the total seaborne iron ore trade in 2010 and 2011, it has fallen to just ~25%.
Brazilian iron ore export growth could pick up pace
But export growth may be turning around—especially now that the mining law was finalized pretty much as most firms expected. This could be a long-term positive for shipping stocks like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Partners LP (NMM), Navios Maritime Holdings Inc. (NM), and Safe Bulkers Inc. (SB).
Caution is needed, however. As Capesize rates recover, the Chinese government could allow Valemax—the largest dry bulk ship in the world that was ordered by Vale to be more competitive against Australian exporters—into Chinese ports. Such a move could signal that Capesize rates are in recovery, but it could negatively impact rates in the medium term. The uncertainty may be a reason why shipping companies aren’t jumping right into purchasing more orders.
- Part 1 - Share price pull-backs are normal in a dry bulk shipper uptrend
- Part 2 - We just need decent ship orders for dry bulk shippers to recover
- Part 3 - Why a slower construction level fall is good for shipping rates
- Part 4 - Why a scrapping activity downtrend remains positive for shippers
- Part 5 - Cape-fleet growth finally breaks 5%, good for shipping stocks
- Part 6 - Iron ore shipments from Brazil are rising, but investors beware
- Part 7 - Why low iron ore stock at Chinese ports is good for shipping rates
- Part 8 - Why falling iron ore and steel prices are helping shipping rates
- Part 9 - Why traders expect iron ore prices to fall, benefitting shippers
- Part 10 - Vessel prices fell in July and August, but may not be negative
- Part 11 - New build prices recover: Long-term positive for dry bulk stocks
© 2013 Market Realist, Inc.