Iron ore price negotiations - Freight collapse bridges Brazilian gap

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

28 Nov 2008

Mr Peter Malpas, Asia market research manager for shipbroker Braemar Seascope, while speaking at Metal Bulletin's Australian Iron Ore conference in Perth, said that Australian iron ore is in danger of losing its price competitiveness against Brazilian ore as the freight differential between the two origins has shrunk to less than USD 5 per tonnes as compared with around USD 60 per tonnes just 2 months ago. Mr Malpas said that "Australia's freight advantage over Brazilian iron ore has drastically disappeared. That difference today is less than USD 5 per tonne, down from USD 60 per tonne in September 2007."
Mr Malpas said that the collapse of Australia's freight advantage has increased the importance of Australia having an efficient export infrastructure for its iron ore. He added that "Without the natural freight advantage, Australia needs every cent to stay competitive against Brazilian ore."
He also said that the freight market's recent volatility was having an impact on Australian iron ore exporters. Daily charter rates charged by ship owners for capsize vessels have slumped by 98.5% from USD 230,000 at the market's peak in June 2008 to USD 3,500 as of November 21st 2008. The current daily charter rate is significantly less than capsize vessel operating costs of USD 6,000 per day, with the result that many owners have laid up vessels rather than lose money at uneconomic charter rates.
Mr Malpas forecasts that the freight market would suffer significant oversupply over the next few years mainly because the capsize fleet is set to double in size by 2012 with orders placed for 771 new vessels in addition to the existing capsize fleet of 815.

Source: Steel Guru