Bloomberg News

Iron Ore Swaps Gain Most Since April on China Building Plan

September 07, 2012

Iron ore swaps jumped the most in at least five months on speculation Chinese infrastructure spending will boost demand for the commodity used to make steel, according to Clarkson Securities Ltd.

Contracts for the first quarter of 2013 rose as much as 8 percent, the most since at least April, to $105 a metric ton, Clarkson data showed. The price was $104.50 as of 4:30 p.m. in London. Forward freight agreements for Capesizes, the largest vessels hauling the raw material, in the fourth quarter increased 3.1 percent to $8,350, extending the biggest two-day gain since July 3.

Traders are anticipating increased demand from China, the world’s largest steelmaker, after the government approved infrastructure spending to revive growth, said Alex Gray, chief executive officer of Clarkson Securities, a unit of the world’s largest shipbroker. China backed plans for 1,254 miles of roads, nine sewage-treatment plants, five port and warehouse projects, and two waterway improvements, statements on the website of the National Development and Reform Commission showed yesterday.

“News that there is going to be an injection of fresh money into that market is much welcomed,” Gray said by phone today from London. “Confidence has taken a real beating in the last months as new ships became available and the volume of inquiries didn’t seem to be enough. Any piece of good news is going to be a cause for price movement.”

The stimulus could boost utilization of the Capesize fleet to 80 percent in the next year from 77 percent now, Herman Hildan, an analyst at RS Platou Markets AS in Oslo, said in an e-mailed note today. Rates could reach $14,000 a day if the volumes are mostly supplied by Brazil, he said.

Prices Slumped

Iron ore prices slumped this year as China, the largest consumer, drew on inventories instead of imports. Ore with 62 percent iron content at the port of Tianjin dropped 35 percent since the end of June to $87 a ton, within 30 cents of the lowest level since October 2009, according to The Steel Index Ltd. The country’s steelmakers cut inventories at ports and mills by about 13 percent to 111.8 million tons in August, Macquarie Research estimates.

That’s cutting demand for shipments and leading to unprofitable freight rates. Daily earnings for Capesizes plunged 87 percent this year to $3,452, figures from the Baltic Exchange showed today. Owners need $16,700 to break even, Pareto Securities AS estimates.

Rates slumped as the fleet grows 3.5 times faster than demand for cargoes. Capacity aboard Capesizes will expand 14 percent this year while dry-bulk shipping demand advances 4 percent, according to Clarkson. Iron ore accounted for 66 percent of one-time bookings for the vessels in the past 12 months, Morgan Stanley estimates.

Largest Vessels

Capesizes are the largest vessels in the Baltic Dry Index, a broader measure of costs to transport commodities by sea, which slid 0.9 percent to 669, according to the exchange. The gauge dropped 22 percent in August, the third monthly retreat in four, on lower rates for all four classes of ships it tracks.

Daily average returns for Panamaxes, the biggest ships to navigate the Panama Canal, declined 2.9 percent to $4,758 today, the exchange’s figures showed. Supramaxes that are about 25 percent smaller lost 0.6 percent to $8,703. Handysizes, the smallest ships in the index, gained 0.3 percent to $6,685, the exchange data showed. That’s the second consecutive gain after returns declined continuously between July 2 and Sept. 5, the data showed.

To contact the reporter on this story: Isaac Arnsdorf in London at iarnsdorf@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net


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