Falling iron ore prices have helped sink charter rates for bulk carrier vessels, as resource companies turn up the pressure on shippers to cut prices in an effort to prevent further drops in profitability.
Average charter rates for benchmark capesize vessels have dipped 30% in the past month to around $8,400 a day, down by more than half from the most recent high in late March.
Though China’s iron ore imports by quantity are rising at a record pace, export prices to the country are declining as Brazil and Australia lift output. Spot prices of iron ore include freight rates, and the seller typically arranges shipping.
It also doesn’t help that the shipping market is glutted. The rise in charter rates through the spring merely “slowed the pace of decommissions for aging vessels,” a marine broker said.
And a trend of price declines over the years has led many to become “doubtful that freight rates will sustain an increase,” a major Japanese shipper said. More ship owners and shipping companies appear to be accepting the lower rates.
An uncertain outlook on Chinese steel demand also provokes worry, as automobile sales have slowed and the country has adopted stricter regulations for housing investments. “If iron ore prices do not rise, long-term sluggishness of freight rates will be inevitable,” Tramp Data Service said.
Japanese shippers Mitsui O.S.K. Lines and Nippon Yusen KK had assumed charter rates of $14,000 to $15,500 a day for capesize vessels in the April-September quarter. But actual rates have dipped below that range. Continued declines could delay recovery of the companies’ earnings.