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INSIDE DRY FREIGHT
Monday, August 18, 2014
Index (Total Return)
Baltic Exch Dry
Close
1015
Change
Pct. Change
0
0
0
0.0%
0.0%
0.0%
Port Congestion (Source: Global Ports)
Avg. Day
Weekly Change
Port Hedland Ore
8.5
0
Newcastle Dyke Coal
2.5
-1
Newcastle Kooragang Coal
5
-2
Brazil Tubarao
China Qingdao
1
13
2
0
Baltic Capesize
Baltic Panamax
Cash Prices
2151
803
McCloskey AP14
71.95
0
0.0%
India Paradip Ore
3
1
McCloskey AP12
76.9
0
0.0%
India Paradip Coal
3
2
Coal Newcastle
68.85
0
0.0%
Rich. Bay Coal
2.5
1
MARKET NEWS
TODAY’S MARKETS
FREIGHT
FREIGHT: The Baltic Exchange's main sea freight index, which tracks
rates for ships carrying dry bulk commodities, rose on Friday due to
higher rates for bigger vessels.
The overall index, which factors in average daily earnings of capesize,
panamax, supramax and handysize dry bulk transport vessels, climbed
73 points, or 7.75 percent, to 1,015 points.
 Big vessels drive up Baltic sea freight index
COAL
 EURO COAL-Prices up on Ukraine supply hit, Poland
import curb hint
Japan's Chugoku to buy stake in Boggabri coal mine
Japan's Chugoku shuts coal-fired plant after fire
IRON ORE
 Shanghai rebar hits record low amid property downturn
China large steelmakers' daily output rebounds 3.6 pct in
early-Aug
Beset by problems at home, Brazilian steel looks out at a
IRON ORE: Shanghai rebar steel futures fell to their lowest level on
record on Monday as prolonged weakness in China's property sector
darkened the outlook for demand, with Dalian iron ore prices retreating
to a two-month trough.
Prices of new homes in China dropped in July from June, the third
straight monthly decline, and the softness spread to more cities, despite
efforts by many local governments to shore up the sector.
hard world
EURO COAL: European physical coal prices rose on Friday after Poland's foreign minister said the government was weighing the idea of
curbing imports of Russian supply and on concerns that fighting may
hurt Ukraine's exports.
The rise in prompt prices on cargoes for delivery to Amsterdam, Rotterdam and Antwerp (ARA) came even though premiums over Australian
supplies were above $8, close to levels where traders often take profits.
GLOBAL MARKETS: Asian stocks stalled and the dollar sagged
against the safe-haven yen on Monday, as another bout of tensions in
the Ukrainian conflict sapped investor confidence.
"A feeling of complacency had been creeping back into investor psychology last week with a general feeling that perhaps the declines at
the start of the month were overdone," Jasper Lawler, market analyst at
CMC Markets, said in a note to clients.
INSIDE DRY FREIGHT
August 18, 2014
MARKET NEWS
In natural gas, prices in Britain rose sharply on Friday as a drop
in piped supply from Norway due to maintenance left the system
undersupplied.
Big vessels drive up Baltic sea freight index
Aug 15 (Reuters) - The Baltic Exchange's main sea freight index, which tracks rates for ships carrying dry bulk commodities,
rose on Friday due to higher rates for bigger vessels.
The overall index, which factors in average daily earnings of
capesize, panamax, supramax and handysize dry bulk transport
vessels, climbed 73 points, or 7.75 percent, to 1,015 points.
The capesize index rose 269 points, or 14.29 percent, to 2,151
points.
Average daily earnings for capesizes, which typically transport
150,000-tonne cargoes such as iron ore and coal, were up
$1,884 to $15,561.
The Baltic's panamax index rose 64 points, or 8.66 percent to
803 points.
Average daily earnings for panamaxes, which usually carry coal
or grain cargoes of 60,000-70,000 tonnes, were up $514 at
$6,397.
Japan's Chugoku to buy stake in Boggabri coal mine
TOKYO, Aug 18 (Reuters) - Japanese utility Chugoku Electric
Power Co said on Monday it has signed a contract with Idemitsu
Kosan Co to buy a 10 percent stake in its Boggabri coal mine in
Australia, marking the first time it has bought an upstream coal
stake.
The mine is currently wholly-owned by Idemitsu. Both firms declined to comment on the value of the deal.
Chugoku also signed a long-term coal purchase agreement to
buy about 700,000 tonnes per year of coal from the mine, located in New South Wales, for at least five years, a company
spokesman said.
The Boggabri coal mine currently produces 5.4 million tonnes of
thermal coal and coking coal a year. It is in the process of raising output to 7 million tonnes a year by 2015, an Idemitsu
spokeswoman said.
The stake transfer and the long-term purchase agreements will
take effect once they are approved by the relevant authorities,
both firms said.
EURO COAL-Prices up on Ukraine supply hit, Poland import curb hint
LONDON, Aug 15 (Reuters) - European physical coal prices
rose on Friday after Poland's foreign minister said the government was weighing the idea of curbing imports of Russian supply and on concerns that fighting may hurt Ukraine's exports.
The rise in prompt prices on cargoes for delivery to Amsterdam,
Rotterdam and Antwerp (ARA) came even though premiums
over Australian supplies were above $8, close to levels where
traders often take profits.
ARA coal for October delivery traded at $78.00 a tonne on the
globalCOAL platform at 1411 GMT, up $0.75 since their last
settlement.
"Friday's ARA coal prices rose after reports that Poland may
restrict Russian coal imports and that Ukraine's production,
which takes place mostly in the conflict-ridden east of the country, and its exports of coal have been hit by fighting," one coal
trader said.
"Although it's unlikely that Poland will get through the EU with its
sanction call, and despite Ukraine's exports to Europe not being
large, it was enough news for one day to push up prices in the
form of a renewed risk premium."
Polish Foreign Minister Radoslaw Sikorski said on Thursday that
the idea of imposing sanctions on imports of Russian coal was
"a subject of intense reflection".
Russia is Europe's biggest supplier of coal, meeting almost a
third of the region's coal demand.
In Ukraine, fighting in the east against pro-Russia militants has
forced coal mines to cut production or close entirely, imperilling
the electricity market and potentially forcing the government to
cut exports or limit consumption.
Despite Friday's rise, ARA prices have slipped this month to end
a steady 10-percent climb since late June.
That rise was helped by utilities, which took advantage of a second-quarter slide in prices to replenish stocks ahead of the peak
demand winter heating season, one coal analyst said.
Japan's Chugoku shuts coal-fired plant after fire
TOKYO, Aug 18 (Reuters) - Japanese utility Chugoku Electric
Power Co said it shut two 500-megawatt coal-fired units at Shin
Onoda power plant in Yamaguchi prefecture in western Japan
on Sunday evening after a coal conveyor caught fire.
The company said to conduct an investigation into the matter
but said it had enough stable power supplies to meet peak summer demand. There were no injuries.
Shanghai rebar hits record low amid property downturn
SINGAPORE, Aug 18 (Reuters) - Shanghai rebar steel futures
fell to their lowest level on record on Monday as prolonged
weakness in China's property sector darkened the outlook for
demand, with Dalian iron ore prices retreating to a two-month
trough.
Prices of new homes in China dropped in July from June, the
third straight monthly decline, and the softness spread to more
cities, despite efforts by many local governments to shore up
the sector.
China's once-hot housing market has slowed this year as both
sales and prices turned south in the biggest pull-back in two
years, driven in part by the cooling economy and by a national
government campaign to keep price rises in check.
"Demand for construction steel products hasn't really picked up
despite efforts by local governments to ease restrictions on
property purchases," said a trader in Shanghai. "We can see
less new projects, which will be negative for steel demand."
The most traded rebar for delivery in January on the Shanghai
Futures Exchange dropped to 3,006 yuan ($489) a tonne, the
lowest for a most active contract since the bourse launched
rebar futures in March 2009.
2
INSIDE DRY FREIGHT
August 18, 2014
MARKET NEWS (Continued)
The price of rebar has fallen nearly 19 percent this year, on
track for a fifth consecutive year of decline.
High supply of steel in China, the world's largest consumer and
producer, is also weighing on prices.
China's large steel mills produced 1.812 million tonnes of crude
steel a day on average in the first 10 days of August, up 3.6
percent from the last 11 days of July, data from the China Iron
and Steel Association showed.
Iron ore futures in China also pulled back. Iron ore for January
delivery on the Dalian Commodity Exchange fell 1.4 percent to
end at the session's low of 650 yuan a tonne, its weakest intraday level since June 20.
A sustained drop in China's iron ore port stocks helped cap the
losses in Dalian futures.
Stockpiles of imported iron ore at China's ports fell for the fourth
straight week to 109.4 million tonnes as of Aug. 15, according to
data tracked by industry consultancy SteelHome.
"From what we see on the ground, demand still looks quite good
and mills continue to buy material, given that their production
rate is still high," said another Shanghai-based trader.
"But I don't think we will see much impact on the price if the
level remains above 100 million tonnes," he said.
In the year to date, the port stocks are still up more than 26 percent.
Iron ore for immediate delivery to China gained 0.2 percent to
$93.40 a tonne on Friday, but ended the week down by 2.6 percent, its biggest loss since mid-June.
Diversified miner BHP Billiton, which is relying on iron ore for the
lion's share of fiscal 2014 earnings, has declared its preference
for a demerger of its aluminium, manganese and nickel assets,
setting the stage for the formation of a separate business that
could be worth at least $12 billion.
buy, and some smaller mills have reduced output in order to
control their inventories," Custeel said.
The consultancy said the Shagang Group, China's largest privately owned mill, raised production by an average of 11,400
tonnes a day in early August, while the Baotou Steel Group
raised production by a similar amount.
However, the Baoshan Iron and Steel Group cut output by
10,400 tonnes a day over the period.
Product stocks at major steel mills rose 3.4 percent compared
to the last 11 days of July to reach 14.57 million tonnes by August 10, Custeel said.
Beset by problems at home, Brazilian steel looks out at a
hard world
SAO PAULO, Aug 15 (Reuters) - Whichever way Brazil's steel
industry looks it sees pain.
At home, the economy is on the brink of recession and demand
for the world's most used metal is on the wane. Abroad, Brazilian exports are hampered by a strong currency and global production overcapacity.
What is needed, steel executives say, is widespread reform,
including higher infrastructure spending, lower taxes, and a
weaker Brazilian real.
But although steel companies talk urgently of a state of crisis,
and many analysts and economists agree, little change can be
expected soon with a presidential election just two months
away.
Last week, Companhia Siderurgica Nacional SA, known as
CSN, the country's largest diversified steelmaker, posted a 96
percent drop in quarterly net income. "Only a crazy person
would invest in Brazil right now," CSN Chief Executive Benjamin
Steinbruch told a conference in Sao Paulo this week.
Strong words for a leader of an industry that remains fiercely
nationalistic. The conference began with the national anthem
and executives repeatedly stressed their patriotic credentials
before sticking the knife in.
The problem for Brazil is that the suffering of its steel industry is
both the result of a weakening economy, as demand from the
construction and auto sectors drops, and a cause of economic
weakness as the high price of steel stops companies investing.
HOME PAIN
In the past three years economic growth in Brazil has slowed to
a crawl with a number of economists suggesting the country
may have already fallen into recession. An economic activity
index that measures the farming, industrial and services sectors
fell in June for a fifth straight month.
The country's auto industry is on track for its biggest drop in
sales in more than a decade, and inflation is leaning heavily
against the upper limit of the central bank's target range.
Industry group Instituto Aço Brasil expects steel production to
fall 2.5 percent this year, with domestic sales down nearly 5
percent.
Benjamin Baptista, CEO of the Brazilan unit of global steelmaker ArcelorMittal, tried to find a silver lining when asked for
his forecasts. "It's hard to be worse than it is now," he said.
With the situation at home severe, exporting seems the answer.
China large steelmakers' daily output rebounds 3.6 pct in
early-Aug
BEIJING, Aug 18 (Reuters) - Daily crude steel output from
China's large steel mills rebounded 3.6 percent in the first 10
days of August to 1.812 million tonnes, according to data from
the China Iron and Steel Association (CISA), adding to concerns
about oversupply.
Production by CISA's 88 steel mill members had dipped 2.8
percent over the July 21-31 period compared with the previous
10 days, raising hopes that big producers were taking heed of
market signals by slashing output.
Total steel output in early August was estimated at 2.325 million
tonnes, up 2.5 percent, indicating that much of the rebound appears to have been driven by planned production increases by
the bigger mills.
The CISA-affiliated Custeel consultancy estimated that nonCISA steel mills produced an average of 505,000 tonnes a day
over the first 10 days of August, down from 512,000 tonnes over
July 21-31.
The minnows accounted for 21.7 percent of total production,
Custeel estimated, down from 22.6 percent over the previous 11
-day period.
"As a result of weak demand, traders have been reluctant to
3
INSIDE DRY FREIGHT
August 18, 2014
MARKET NEWS (Continued)
Steelmakers loathe to reduce production levels because it results in higher costs, politically sensitive job losses and puts
companies at a disadvantage if markets pick up.
But international markets are flooded with steel from China,
where a rampant increase in production over past decades has
dramatically outstripped demand as Chinese growth slows.
Both Usiminas, formally known as Usinas Siderurgicas de Minas
Gerais SA and one of the largest steelmakers in the Americas,
and CSN say they are looking to export more steel products but
acknowledge margins could suffer.
The biggest problem is the strong real. Some economists estimate that given Brazil's current account deficit, the real should
be at a level of between 2.7 and 3.0 to the dollar.
On Friday it was trading at 2.27 to the dollar. Brazil's central
bank intervenes regularly in the market to prop up the currency
to keep inflation under control.
Steelmakers expect the real to weaken through to the end of the
year, offering some respite. But the exchange rate is not the
only problem.
HAVE YOUR CAKE AND EAT IT
According to Sergio Leite, vice-president for sales at Usiminas,
the high tax burden in Brazil makes the industry uncompetitive.
He cited a study from Aço Brazil in 2012 that showed Brazilian
steel had lower production costs than any of the world's five
main producers: the United States, Germany, China, Russia
and Turkey.
But "when this steel arrives in the hands of the consumer, with
taxes added, it arrives as the most expensive," Leite said.
High taxes, however, are in essence the flip side of the protection from imports the industry enjoys through strict anti-dumping
legislation. The steel industry, by asking for lower taxes but a
continuing barrier to imports, wants its cake and eat it too.
But the sense that reforms are needed, and will be delivered by
whoever wins the election, is gaining traction.
"There is now a consensus from various industrial sectors that
reform is needed to improve the tax system, to simplify and reduce bureaucracy," said Luciano Coutinho, president of Brazil's
powerful development bank, BNDES.
(Inside Dry Freight is compiled by Renuka Vijay Kumar in Bangalore)
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