16-12-2022 China establishes massive iron ore buyer, but market expert plays down shipping impact, By Michael Juliano, TradeWinds
China’s plans to form the world’s largest iron ore buyer may allow the country to get lower prices for the commodity someday, but they should not have much of an impact on the dry bulk market, market watchers say. State-owned China Mineral Resources Group (CMRG) is set to become the biggest iron ore buyer on the planet next year when it seeks to consolidate purchases on behalf of almost 20 of the biggest Chinese steelmakers, Bloomberg has reported.
But John Kartsonas, founder of an asset management firm that runs a dry bulk exchange-traded fund, played down the potential impact of the looming iron ore titan. “At the end of the day, there are four main iron ore suppliers and one main iron ore consumer,” he told TradeWinds. “The interaction between those will determine what it means for iron ore prices and for shipping.” He said CMRG’s presence in the market will lower iron ore prices for China, but shipping rates should not be affected because those are more impacted by the profitability of the steel mills. “We will need to wait and see what it means,” he said. “For the near term, I think it is irrelevant.”
Meanwhile, average spot rates for capesize bulkers, the primary vehicle for moving iron ore, surged in the last week. The Baltic Exchange’s Capesize 5TC basket of spot rate averages across five key routes improved 31.2% over the past seven days to more than $18,300 per day on Friday. The gains 5TC shot up on Thursday and Friday.
The exchange’s analysts tied the surging spot rates to strength in the Atlantic market. Growing cargo from West Africa pushed up the benchmark route from Brazil to China, and a lack of available tonnage in the North Atlantic lifted rates. Also, Kartsonas blamed nature for the week’s capesize rises. “Delays and weather up in northern Europe has created a mini squeeze which is driving spot rates for now,” he said.
The Pacific market remained active, but freight rates slipped. Australian mining giant Rio Tinto hired EBE’s 180,200-dwt El Grasso (built 2012) on Thursday to move 170,000 tonnes of ore from Dampier, Australia, to Qingdao, China, at $8.40 per tonne after getting loaded from 30 December to 1 January.
By Friday, the Baltic Exchange estimated freight rates on the route rose to $8.63 per tonne. But that was still lower than the $8.75 price that miner BHP fixed an unnamed capesize to ship the same quantity of ore from Port Hedland, Australia, to Qingdao.