Iron surge imminent

Shipping rates are poised to rally in the second half of the year as Vale SA, the world’s largest iron ore producer, drives up exports of the raw material, according to Commodore Research & Consultancy.

Vale will sell 321 million metric tons of the raw material used in steel this year, the Rio de Janeiro-based miner said in a July 31 earnings statement. That implies its second half shipments will jump 22% compared with the first six months and increase demand for vessels, Jeffrey Landsberg, managing director of Commodore, a New York-based adviser to ship owners, said in an e-mailed report today.

While a global glut of iron ore has driven the price of the commodity to about the lowest for the time of year since 2009, shipping rates are rallying. The raw material averaged $109.09 a ton so far this year at the Chinese port of Qingdao, 19% less than in 2013. The cost of booking Capesize vessels to haul the raw material rose almost doubled over the same period.

“A very large surge in Brazilian iron ore shipments is about to begin,” Landsberg said. “Capesize rates will find significant support as a result.”

Capesize rates averaged $13,447 a day this year, compared with $7,424 in the same period of 2013, according to prices from the Baltic Exchange, the London-based publisher of shipping costs on more than 50 trade routes. The ships will earn $24,000 in the third quarter and $32,000 in the fourth, according to analyst estimates compiled by Bloomberg.

Voyage Durations

While Brazil is the second-largest iron ore exporter, after Australia, cargoes from the South American country employ more vessels because of the distance involved in getting the raw material to China, the biggest buyer. A one-way shipment to Qingdao from Brazil takes 38 days, more than three times the duration of a delivery from Australia.

Vale said July 31 that it sold 144.7 million tons of ore in the first half and retained a prior full-year target of 321 million tons. Shipments from the country normally rise in the second-half of the year, Landsberg said.

Capesizes are the largest ships within the Baltic Dry Index, a measure of shipping costs across the dry bulk sector compiled by the Baltic Exchange. The wider gauge averaged 1,122 points this year, a 25% increase compared with the same period in 2013.