Wednesday, 20 Jul 2011 |By Bloomberg
Bloomberg reported that the largest glut of ships in history means the cheapest freight rates relative to iron ore prices in at least a decade, helping Rio Tinto Group and BHP Billiton Limited to generate record profit.
According to data compiled by Bloomberg, the cost of transporting iron ore to China from Brazil, the biggest route, is now equal to 10% of the value of the commodity used by steelmakers, compared with 64% in 2003.
Mr Sverre Bjorn Svenning director of Fearnley Consultants in Oslo who correctly predicted a slump in freight rates in March said that proportion probably won't rise much until at least 2013.
Mr John Banaszkiewicz, the London based founder of Freight Investor Services Limited, said that "It's a dream for an iron-ore mining company: the highest commodity prices and the lowest freight prices. Freight used to be a critical part of the delivered cost of iron ore and now it’s almost nothing."
Mr Johnson Imode, an analyst at Standard & Poor’s Equity Research in London, said that lower freight costs increase the mining companies’ share of the iron ore sale price. The effect of freight on their profit is hard to gauge because they don’t disclose contract terms.
According to the London based Baltic Exchange, capsizes cost USD 11,314 a day to charter in the single voyage market, compared with a peak of about USD 234,000 in June 2008. Traders of freight derivatives anticipate costs no higher than USD 18,075 through 2016. Rates are volatile, rising or falling 18% or more in all except one of the last 12 months.
The United Nations Conference on Trade and Development estimates that shipping accounts for about 80% of world trade in goods. Global demand for iron ore will rise 7.3% to 1.84 billion tonnes in 2011, while supply will advance 2.5% to 1.81 billion tonnes. Iron ore fines, a grade of the material, will average USD 251.90 a tonne in 2011, 41% more than in 2010. It anticipates USD 243.50 for 2012 and USD 230.70 in 2013.