Iron ore price negotiations - Freight collapse closes gap

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

30 Nov 2008

Platts reported 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 tonne compared with around USD 60 per tonne just 2 months ago. Mr Peter Malpas, research manager of Asia market for shipbroker Braemar Seascope said that iron ore producers such as BHP Billiton have previously argued in contract negotiations with Chinese customers that Australian iron ore should attract a premium to take into account this freight differential.
Mr Malpas further 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 said that "Without the natural freight advantage, Australia needs every cent to stay competitive against Brazilian ore."
He also said the freight market's recent volatility was having an impact on Australian iron ore exporters. He said that “Daily charter rates charged by ship owners for cape size 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 cape size 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.”

Source: Steel Guru