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Kallanish Kallanish

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August, 5th 2020

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JUL 08
16:32

Reduced Brazil ore shipments pressure freight rates: Moody's

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The reduction in iron ore cargoes from Brazil in the aftermath of last year's Vale dam accident and significant new supply of vessels slated for delivery in 2020 pose risks to dry bulk freight rates, says Moody’s. These risks are only partially offset by the resumption of industrial activity in China.

Conditions in the dry bulk segment will remain challenging for the rest of 2020 after a difficult first half that saw the Baltic Dry Index (BDI) approach an all-time low, with the Capesize segment sliding into negative territory, the credit rating agency observes. These declines were driven by quarantines and shutdowns of industrial production in China in the first quarter and later lockdowns in parts of Europe and North America. The Brazilian iron ore shipment reduction also added pressure.

The dry bulk market is largely driven by trade in coal, iron ore and grains, the majority of which are imported by China and other Asian economies. Chinese imports of coal increased 23% sequentially and 35% year-over-year in April, indicating that industrial demand is growing after pandemic-related lockdowns. Meanwhile, iron ore imports remained mostly flat on-year in March.

Rapid growth in iron ore imports for the rest of the year appears unlikely, however, in the wake of the pandemic. “At the same time, other large dry-bulk importers, such as India, are still struggling with the effects of coronavirus as the number of new cases in the country continues to increase,” Moody’s says in a report sent to Kallanish.

The BDI tumbled to 393 on 14 May 2020 from over 1,000 at the end of 2019. Although it has staged an unexpected recovery, reaching 1,794 on 29 June, its future development is uncertain, Moody’s says.

Positive signs are emerging for the container shipping segment following unprecedented capacity adjustments by carriers. These have kept freight rates above last year’s levels despite a significant decrease in the bunker price.

“Nevertheless, this positive development could be challenged by a resurgence in infections, endangering fragile demand for finished and semi-finished goods in advanced economies in North America and Europe,” Moody’s observes. “We expect the supply of new vessels in 2020 to be slightly lower than last year with further postponements and cancellations likely, but still exceeding the lacklustre demand.”