Bulker boomerang

The “worst is over” for dry-bulk commodities demand as China opens its doors once again for large scale imports, a report from Goldman Sachs claims.

The iron ore train is busy once again.

The positive noises on the dry-bulk market were also accompanied by news from Rio Tinto that one of its business units has agreed a 33% reduction in the price of iron ore with a Japanese mill.

Bulker rates have been rebounding impressively in the last few days and weeks but there is still considerable disagreement on when and to what extent a full recovery in the market will occur.

What appears a commonality in most arguments, however, is the place of China, and to a lesser extent India, in the expected recovery.

“We are becoming increasingly confident that the period of weakest demand for raw materials is behind us,” Goldman Sachs JBWere Pty analysts said in a report.

“China buying is now setting a floor for bulk commodities prices. Economic sentiment, demand for raw materials and commodities prices will be better in 12 months’ time and 24 months’ time, than they are now.”

Sam Walsh, chief executive of Rio Tinto’s iron ore unit, echoed these sentiments in a conference in Australia on Tuesday.

“We are ready to expand again. Signs of improvement are present in recent data from China and such improvements continue the traditional recovery in exports and housing,” Bloomberg quoted Walsh as saying.

“What is unshakeable is our belief that China and India and the other emerging economies will be the key engines of any return to world growth and commodity demand growth.”

Walsh was speaking on the same day Rio Tinto’s offshoot Hamersley Iron agreed a new annual iron ore contract with Japan’s Nippon Steel Corp which shows prices down a third (see prices below).

“We believe this settlement is a realistic outcome for both parties - one that reflects the global market for iron ore and the current challenging market conditions facing our customers,” Walsh said of the agreement.

Such agreements are likely to get more commodities on ships, albeit at much softer rates than a year ago.

Only on Monday Golden Ocean stated in its first-quarter report that a market recovery was dependent largely on Chinese imports. The country imported 131 million tonnes of iron ore in the first quarter, a record for any quarter and a 15% increase in the same period of 2008.

“In order for the freight and asset market to regain stability we will be dependent on a continued strong growth in particularly the Chinese economy. The stimulus packages put together by governments in order to help the financial situation are likely to generate substantial additional demand for bulk products like iron ore,” Golden Ocean wrote in Monday’s statement.

STX Pan Ocean wrote last week that it spies a recovery in the dry-bulk market towards the end of the year with much dependent on the outcome of iron ore contract negotiations, more protracted than usual this year due to the wide discrepancies between what mining majors are looking for and what steel mills are willing to give.

Rio’s rival BHP Billiton had appeared more bullish that most on the market earlier on this year.

“Whilst the global economy faces significant challenges, our long-term outlook remains unchanged. We expect emerging economies’ long term growth to be robust as they continue on the path to urbanisation and industrialisation,” BHP noted in its second-half result released in February.

The dry-bulk market has been awash with impressive rates in the last while. Only last week Goldman Sach’s commodity trading unit J Aron & Co booked the 152,000-dwt Rubin Artemis (built 1996) for a China-Brazil roundtrip at $35,000 per day.

Rio booked the 175,500-dwt CSK Fortune (built 2003) for a front haul at $59,500 daily recently with plenty of China-Australia roundtrips going to Rio and BHP for around the $40,000 mark.

And long term there appears more confidence, too, as a J Lauritzen 180,000-dwt newbuilding was snapped up by STX for 15 years at $25,000 a day.

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