Please register your name first before using the shoutbox
Hello everybody, please register your name first before using the shoutbox. At least we know who is online. :)
Cheers.
Learn2win
Cheers.
Learn2win
posted by Learn2win at
11:08 pm
1 Comments:
Ship Shortage Pushes Up Prices Of Raw Materials
By ROBERT GUY MATTHEWS
October 22, 2007; Page A1
The cost of shipping raw materials across the world's oceans has reached an all-time high, pushing up prices of grain, iron ore, coal and other commodities.
The average price of renting a ship to carry raw materials from Brazil to China has nearly tripled to $180,000 a day from $65,000 a year ago. In some cases, ocean shipping can be more expensive than the cargo itself. Iron ore, for example, costs about $60 a ton, but ship owners typically are charging about $88 a ton to transport it from Brazil to Asia.
The trend may force manufacturers to pay more for the basic ingredients they need to make their products. And those higher costs could be passed on to consumers, affecting the price of everything from automobiles and washing machines to bread.
The main reason commodity shipping rates are escalating: not enough bulk ships. The shortage stems from the surging volume of global trade as growth explodes in China, India and other developing nations. China's voracious manufacturing sector is compelling it to look increasingly far afield for resources, such as to Brazil for iron ore. (See related article.)
The Baltic Exchange Dry Index, the most important and widely used indicator of world-wide ocean freight rates for bulk commodities, hit a record Friday after rising 169% over the past year. And shippers, brokers and commodity merchants are braced for higher rates next year and possibly through 2009. By then enough new bulk freighters are expected to come on line to ease the shortage.
"All of the ship owners are making a lot of money because these are numbers that the market has never seen," said John P. Dragnis, commercial director of Athens-based Goldenport Inc., one of the largest providers of ships to commodity sellers.
Even when ships are available to carry the cargo, inadequate port facilities can cause delays, driving up the cost of shipments. At Brazilian ports, ships often wait offshore for as long as two weeks for their turn to load or unload, like airplanes sitting on a runway waiting for a gate.
Brazil isn't the only source of bottlenecks. As of last week, 131 vessels were waiting to pick up or unload coal and iron ore at Australia's main ports, according to the Global Ports Congestion Index, which tracks wait times world-wide.
As a result, some Australian coal producers are being forced to cut back on exports, which is expected to add to the upward pressure on global coal prices. Likewise, commodity merchants are building higher costs for transportation into the price of steel, grain and aluminum. The steep run-up in bulk shipping rates has largely bypassed other types of vessels, like oil tankers or the container ships that transport finished goods like television sets, because those ships aren't in such short supply.
Though bulk shipping costs have been rising for a couple of years, the run-up has intensified over the past year. The full impact of those spot-market rate increases has yet to filter through to the 70% of bulk commodity shipments that are covered by long-term contracts.
Still, rather than rely solely on shipping companies, some commodity producers are buying or chartering their own ships. Corus Group, a subsidiary of Tata Steel Ltd. of India, paid $135 million to charter a seven-year-old bulk cargo ship. Other companies say they may shut down certain operations if they can't get a ship at a reasonable price or can't justify higher shipping costs when it comes time to renew their contracts.
Mining giant Rio Tinto PLC recently took delivery of a new bulk carrier and expects to get four more soon to ship bauxite, a key raw material for making aluminum. The timing worked out well for Rio Tinto, which placed its orders in 2004, before shipping rates jumped. "We are looking at similar opportunities for managing shipping costs within the group, but we always assess the cheapest option for any given set of circumstances. We also do spot chartering and have longer-term arrangements," says Christina Mills, a Rio Tinto spokeswoman. Vimetco, a Dutch aluminum producer with refineries in China and Romania, has had long-term contracts under which its shipping prices have been well below current spot-market rates. Christian Wust, Vimetco's chief executive, said that today's higher shipping costs could prevent the company from re-opening one of its refineries in Romania. "Right now we are planning a restart, but only if we can secure lower shipping prices."
Adding to the upward pressure on shipping rates is the fact that bulk ships are taking longer voyages these days, says Christopher G. Combe, shipping analyst for Jefferies International Ltd. For example, though China still purchases most of its iron ore from Australia, a growing percentage now comes from Brazil, which is much farther away.
"It is called the 'ton-mile effect,'" says Mr. Combe. "Basically China and India are sourcing providers that are a bit further afield. A lot of the Asian demand now has to be satisfied from South American mines," so the trips take longer.
Another factor behind the increased demand for shipping is a smaller soybean harvest in Asia, which has driven up demand for soybeans from the U.S., further increasing trade volume and demand for bulk ships.
Clifford Winston, an economist at the Brookings Institution, says that higher shipping rates will increase commodity prices according to weight, with transportation fees making up a larger percentage of the cost of heavier products like iron ore and grain. "There is no question that there will be price increases," Mr. Winston says. Even so, he adds, rates aren't likely to stay high because the supply of ships eventually will better balance out demand. "I would qualify my concerns saying that you should give supply a chance."
Indeed, shipbuilders in Japan, South Korea and China, which have been busy building container ships, are just beginning to fill orders for bulk ships. Given the typical 36-month lag between orders and delivery, most of those new bulk ships won't be ready until 2010. But some analysts say the number of such vessels could double by the start of the next decade.
Meanwhile, iron-ore miners are trying to get ahead of shipping-price increases by forcing steelmakers to pay more for their ore. Roger Agnelli, chief executive officer of Brazil's Cia. Vale do Rio Doce, the world's largest iron-ore producer, calls the high freight rates "a market distortion" but adds that they aren't expected to change anytime soon.
According to Simpson, Spence & Young, a British-based ship broker and market researcher, the world's seaports had record tonnages for the first eight months of this year. In South Korea, coking-coal and steam-coal imports have risen by about 3% to a near-record 58.1 metric tons. Brazil's ports exported about 167.1 million metric tons of commodities in the first eight months of the year, nearly 10 million metric tons more than a year earlier. Ports in China and Australia are also recording record volumes of commodity imports and exports.
Post a Comment
Subscribe to Post Comments [Atom]
<< Home