Tracking steel production
Iron ore and coking coal form the bulk of the dry bulk shipping industry. Steel production consumes these two commodities. So, it’s important to track steel production. This helps decipher trends for iron ore and coking coal demand and dry bulk shipping.
Crude steel output falls
The WSA (World Steel Association) reports China’s crude steel output on a monthly basis. According to data released on May 22, world steel production fell by 2.1% YoY (year-over-year) in May. China’s steel production also fell by 1.6% YoY on a YTD (year-to-date) basis. The production for May came in at 69.95 million tons.
Chinese (FXI) steel mills have curbed some of the steel production due to squeezing margins. Iron ore prices remain above $60 per ton even when steel prices are falling.
Outlook is negative for steel production
According to the CISA (China Iron and Steel Association), China’s crude steel output could fall by as much as 2% in 2015. This estimate is lower than the CISA’s March estimate of 1.1%.
Dry bulk shipping companies thrived on China’s appetite for imported commodities, especially iron ore and coal. Now, with China’s demand growth waning, dry bulk shippers are left with huge supply glut.
In turn, this is putting downward pressure on freight rates and ultimately on revenues, profits, and stock prices of shipping companies like Diana Shipping (DSX), Navios Maritime Holdings (NM), and Eagle Bulk Shipping (EGLE). The Guggenheim Shipping ETF (SEA) has also been negatively impacted by these developments. Navios Maritime accounts for 1.9% of SEA’s holdings.
Investors can also invest in the SPDR S&P Metals and Mining Index (XME) to gain diversified exposure to the metals and mining space.