Long-term trend remains positive for dry bulk shipping firms

Part 9

Australia exported record iron ore in September, a positive trend

The Hedland Port in Australia

The Hedland Port is one of the major exporting ports of iron ore. It occupies a fifth of the global seaborne market for iron ore. Located in the Pilbara region of Western Australia, with a population of approximately 14,000, it’s the largest port, exporting some 277 million dwt (deadweight tonnage) of raw material in 2012. Of that 277 million dwt, iron ore accounted for ~239 million dwt.

Hedland Port Iron Ore Loaded for Export 2013-10-04Enlarge Graph

Continuous increase in iron ore exports

In September, the Hedland port exported a total of 29.0 million mt (metric tonnes). This was an increase from the 27.4 million tonnes in August 2013 and 19.9 million tonnes in September 2012. Shipments to China, the biggest buyer, increased to 23.0 million mt in September from 22.3 million mt the prior month. Compared to the same month last year, shipments rose by 52%—a robust figure.

Expect 2014 to be a solid year

The Hedland Port is used by BHP Billiton, Fortescue Metals Group, and Atlas Iron to ship iron ore cargoes. With BHP Billiton and Fortescue Metals Group expected to significantly increase iron ore production capacity in 2014, these mega producers are expected to gain share in the world’s iron ore market, which is positive for DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB), Navios Maritime Partners LP (NMM), and Navios Holdings Inc. (NM) over the long term.

Rio Tinto will support near-term rates

In related news, Rio Tinto, which owns ports in the same region, has successfully increased its iron ore capacity from 239 million mt to 290 million mt a year. On September 2, the first ship was loaded with iron ore from its expanded port, railway, and mine operations. The latest increase in Capesize rates reflects this development. We mentioned a few weeks ago that there was a good probability Capesize ships would remain high as Rio Tinto begins capitalizing on the newly expanded capacity. As seasonal peak in rates could hit anytime now, investors shouldn’t expect dry bulk stocks to jump much further. Most of the surprise upside is priced in already. Nonetheless, the long-term trend remains positive.

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