Dry Bulk Weekly – July 11, 2010
Baltic dry index fell 16.6% last week; The hardest hit were Panamaxes with 20.6% loss; Capesizes lost 20.0% ; Handysizes and Supramaxes lost 10.3% and 8.9%.
Chinese tax rebates on hot-rolled coil and some cold-rolled coil and galvanized products will be removed starting July 15. This makes Chinese steel exports uncompetitive and it is moving the markets. Chinese steel mils now have to choose whether to reduce capacity and cost or go bankrupt.
Both steel and iron ore prices are falling due to the removal of tax rebates. Forward steel curve for some steel grades in China has moved to backwardation (spot prices higher than future prices). So, I suppose they have to liquidate inventory (and they have plenty of it) at fire-sale prices.
Liquidation of both iron ore and steel inventory reduced the short term need for marine transport (probably will reduce the longer term need as Chinese steel mils will not export it’s excess steel at dumping prices). The dry bulk market is suffering hard and this is not coming to an end as port congestion is easing off ( fell probably by a third).
Chart 1. Baltic Dry Indexes Relative Performance
Source: Bloomberg
Chart 2. Baltic Dry Index
Source: Bloomberg
Chart 3. Baltic Dry Index Components
Source: Bloomberg