Brazil iron ore
According to customs data, Brazil accounted for 18% of China’s overseas purchases in 2014 compared to 19% in 2013. The country is home to Vale, one of the world’s largest mining companies. As a result, 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 affecting dry bulk shipping companies’ revenues, earnings, cash flows, and share prices.
According to data from the country’s Ministry of Development and Trade, or MDIC, Brazilian exports of iron ore were up 11.6% year-over-year to 25.3 million metric tons in February 2015. Compared to January 2015 levels, exports were up 8.4%.
Average iron ore prices plunged 48% in February 2015 from where they were the same month a year ago. This decline has negatively affected the SPDR S&P Metals and Mining ETF (XME) that invests in industries such as steel, coal and consumable fuels, gold, precious metals and minerals, aluminum, and diversified metals and mining.
Lower prices have cut Brazilian iron ore export revenue by 42%. Shipments from Brazil accounted for 25% of seaborne trading. However, due to weakening growth in steel production, Brazil’s share may narrow. Nevertheless, seasonality in Brazilian iron ore exports may improve the pace of shipments for the rest of 2015 and possibly buoy Capesize rates.
“Brazil’s iron-ore exports to China will remain stable for five years but then a sharp slowdown in the Asian giant’s housing market will trigger a reduction in demand for steel,” said the managing director of Beijing-based consulting firm Gavekal Dragonomics for a report published in Hellenic Shipping News.
In a report by EFE News Service, Arthur Kroeber, a US economist, was cited as saying, “China’s real-estate sector has already reached its peak and therefore Brazil must find other growth mechanisms.”
Shipping companies including DryShips (DRYS), Diana Shipping (DSX), Navios Maritime Partners (NMM), Navios Maritime Holdings (NM), and Safe Bulkers (SB), as well as the Guggenheim Shipping ETF (SEA), may be affected if Brazil’s exports are reduced and its market share, diminished.