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Indonesia’s export ban hurts dry bulk shippers in the short term

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The latest movement in the Baltic Exchange Indices 

Since January 2014, the year-over-year growth of the Baltic Dry Index—the benchmark that reflects the overall shipping rate for transporting dry bulks such as iron ore, coal, and grain across the ocean—has fallen quite a bit. Still, it’s a long-term positive sign that the yearly growth is still above 50%.

part 4

Supramax and Handymax vessels appear to be underperforming the overall dry bulk index, likely because increased iron ore production and exports are supporting Capesize rates. Panamax rates are also underperforming, as lower Indonesian exports contribute negatively to demand for Panamax vessels, and the particular class of vessel is currently experiencing above-industry-average capacity growth.

Indonesia’s export ban has a negative effect on dry bulk shipping rates 

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Indonesia’s ban on unprocessed nickel and bauxite can drive down shipping rates in the short run—especially for smaller dry bulk vessels that are more often used to transport minerals. Due to this export ban, China, the largest buyer of Indonesia’s raw ore, will need to import substitute supply from more distant sources like Canada and Russia and pay more for shipping those goods, which could be positive for the shipping industry later on.

The short-term outlook for dry bulk shippers isn’t so bright 

Although China has to switch imports sources, the market outlook for dry bulk shipping isn’t so bright. Traders and analysts believe Indonesia’s export ban will continue to drive up nickel price before nickel production in other exporting nations is able to catch up and fill the gap Indonesia has left. This is a pretty big deal, since China imports about 3.5 million metric tonnes of nickel ore and concentrates a month from Indonesia. Globally, dry bulk trade per month is equivalent to ~320 million metric tonnes per month. Given the inelastic supply nature of the shipping industry, even a 1.0% difference can have a large impact on the Guggenheim Shipping ETF (SEA) and dry bulk shippers like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB), and Navios Maritime Holdings Inc. (NM).

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