Home / Shipping News / Dry Bulk Market / Iron Ore Demand Concentration Doesn’t Bode Well for the Dry Bulk Market

Iron Ore Demand Concentration Doesn’t Bode Well for the Dry Bulk Market

China’s recent move to exert more control over the iron ore market pricing, could result in more control over the seaborne market as well. In its latest weekly report, shipbroker Allied Shipbroking said that “the difficulties on the Capesize front look to still be on the forefront, despite some improvement noted early last week as well as in the week prior. We have already seen some retreat in the vital support brought about by the improved coal trade this year, although this is likely to prove only temporary given the fact that there are still major supply issues being faced in Europe and the Far East”.

Source: Allied Shipbroking

According to Allied’s George Lazaridis Head of Research & Valuations, “the biggest headache moving forward will likely come from the faltering iron ore trade, with China’s latest move in establishing a giant mineral resource group to give it larger control over global iron ore pricing is poised to create a further loss in bargaining power for global traders as well as those operating within those supply chains. The new centralized state mineral giant, named China Mineral Resources Group, will be engaged in the exploration and mining of mineral resources as well as importing and exporting of minerals and the management of supply chain services, investment activities and asset management related to these resources. It has been set with an initial firepower of close to US$ 3 billion and will also be responsible for managing the purchasing needs of steelmaking state giants such as China Baowu Steel Group, Ansteel, China Minmetals and Shougang Group through a unified buying platform”.

Lazaridis said that “establishing and utilizing such a central group for coordinating overseas resources and imports would mean that the iron ore market is slowly getting ever more concentrated on the demand front. The main goal is obviously to centralize purchasing and gain more sway with suppliers over pricing. However, the influence over the market will obviously go beyond just the price of the commodity and the group will also utilize this centralized influence on all other costs including that of freight. Given that the supply side is already a highly concentrated market, with more than half of the world’s total iron ore resources controlled by the four major miners, the biggest squeeze is likely to be felt within the supply chains laying in between. It is too early to see any of the effects coming into play and it will likely be some time before the group will start to make its presence felt, yet given that we are amidst a fairly bearish regime for the steel market, there is the potential for there to be more imminent negative effects at play”.

Source: Allied Shipbroking

“For the time being it seems as though the Capesize market has managed to hold a relatively good overall performance despite the slump seen in global steel consumption over the past few months. There is an expectation that we could start to see a recovery in steel consumption during the Autumn period, with significant hopes being placed on the much anticipated US$220 billion fiscal stimulus program through special bond issuance by local governments that could bring about a significant renewed boost in real estate and infrastructure developments. At the same time, the market has benefited greatly from the subdued Capesize fleet growth noted over the past few years, while given that this rate of growth is likely to hold moving forward thanks to the limited levels of new ordering activity and the already deflated orderbook levels, we are likely to see relatively good freight rates hold. The question as to if these freight levels will surpass those noted last year or not will depend on how well this inflow of global stimulus measures will find fertile ground so as to bear fruit”, Allied’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping