China sparks freight sunrise

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Published: Sunday, 22 November 2009

Shipping rates have increased steadily during the last three months and China is the reason behind increase as the country imports more coal for the winter demand

Shipping rates have increased steadily during the last three months. From the beginning of November, global rates for transporting dry bulk grew by nearly 10%, after major Asian economies registering expanded manufacturing activities the same month (IM 5 November 2009: Shipping rates up nearly 10%).

China is the reason behind increase as the country imports more coal for the winter demand. In November, shipping rates for dry bulk hit a yearly high, while iron ore contract talks are again looking positive for 2010.

Rates were driven up after the Chinese government ordered power companies to increase their inventories of coal, following heavy snow storms in the country, to ensure there was enough fuel supplies after the cold weather disrupted transportation.

Coal stockpiles at large power stations in Shandong province, east China, dropped to 15 days supply from 17 days following snow which upped demand for coal burned for heating, the local government said.

Prices for coal at China’s Qinhuangdao port, a commonly used benchmark in the world’s largest producer and user of coal, rose for nine weeks in a row as demand grew during winter and snowfalls affected fuel deliveries, according to data published by the China Coal Transport and Distribution Association.

While China’s transport links freeze, contract talks with iron ore miners look like they may be thawing with indication that the Chinese steel industry may accept higher prices for next year.

10-20% increase

In a remark widely seen as opening a door to increased prices, The China Iron and Steel Association vice chairman Luo Bingsheng has said there may be some scope for lifting prices despite it being “small and difficult”.

Contract talks usually start early in Q4, with an aim of concluding a deal by the end of March, but China is looking to start talks early January 2010.

The comments are welcome relief for Anglo-Australian mining groups, Rio Tinto PLC and BHP Billiton, as well as Brazil’s Vale SA.ÊThese three make up 70% of seaborne iron-ore trade.

Analysts suggest the increase could be between 10-20%. Calls for a 30-35% price increase were “not reasonable”, association secretary-general Shan Shanghua said recently at a conference in Qingdao, China.