Given some interest here on tickertalk about Grindrod, and the recent investment into it by Remgro, it is interesting to see the salient points of this article from businessweek.com
The central point is that the bulk miners are having it much easier than bulk shippers at present.
"Ship Owner Losses Persist on Glut as Mine Profits Boom: Freight
September 27, 2011, 12:47 PM EDT
By Alaric Nightingale Sept. 27 (Bloomberg) --
Ship owners may face losses until 2015 even with mining companies poised to increase global iron- ore supplies by almost as much as China imports in a year.
Rio Tinto Group, Fortescue Metals Group and Vale SA will lead a 59 percent expansion in seaborne supply to 1.69 billion metric tons over the next four years, Morgan Stanley estimates. The capesize fleet grew 73 percent since 2007 and will gain 25 percent more by 2015, according to Drewry Shipping Consultants Ltd. Daily rates may not exceed the $20,000 needed to break even until then, said Andreas Vergottis, who helps manage the world’s largest shipping hedge fund at Tufton Oceanic Ltd. in Hong Kong.
The three mining companies will make the most profit ever this year as combined earnings across the 14-member Bloomberg Pure Play Dry Bulk Shipping Index slump 55 percent, analysts’ estimates compiled by Bloomberg show. As the shipping industry grapples with a glut, miners are making money from shortages. Iron-ore prices more than doubled since the end of 2008 as suppliers failed to keep pace with demand from China, where steel production rose more than threefold since 2002.
“It’s really hard for people to grasp the huge number of vessels that are being delivered,” said Erik Nikolai Stavseth, the analyst at Arctic Securities ASA in Oslo who correctly predicted a tripling in charter rates last year and sees no return to profit until 2015. “In addition to the iron ore that we know is coming, we need an extra half a China, growing from where it was in 2002 to where it is now, to mop up the excess.”
While rates for capesizes tripled to $28,949 since Aug. 1, the average return since January has been $11,165, heading for the lowest year in more than a decade, data from the London- based Baltic Exchange show. Annual forward freight agreements, traded by brokers and used to bet on future shipping costs, show rates no higher than $18,250 through 2016, according to data from the bourse, which publishes daily assessments for more than 50 maritime routes.
Other shipping markets also face vessel gluts. Supertankers that haul about a fifth of the world’s oil are losing money on the industry’s two busiest trade routes, according to the Baltic Exchange. The container-shipping industry is contending with the longest stretch of near-zero rates in its half-century history on the Asia-to-Europe route as a capacity glut combines with the slowest trade growth since 2009.
Billionaire Wilbur Ross said last month that shipping was probably “relatively close” to the bottom of the cycle. The 73-year-old is part of a group which spent $900 million on 30 ships hauling gasoline, diesel and other refined products, his first investment in the industry. The transaction was completed last night at midnight, he said at Bloomberg Link’s Dealmakers Summit in New York today.
“You’re going to see more transactions in shipping,” Ross said today. “Shipping is a very capital intensive industry, a global industry, but highly fragmented.”
Shipping derivatives are the third-most volatile commodity contract traded globally, according to Nikos Nomikos, a shipping risk management professor at Cass Business School in London. The most volatile are natural gas and electricity.
Rates for capesizes, which hold at least 150,000 metric tons of iron ore, have collapsed from as much as $233,988 in 2008 after owners ordered a record number of new vessels. They are the largest component of the Baltic Dry Index, a measure of the cost of hauling commodities by sea, which fell 84 percent since July 2008.
Stavseth is one of three analysts who estimate new ships need about $20,000 a day to make a profit. Break even rates vary across companies and fleets depending on the age of vessels and the financing terms secured to buy them.
More than 90 percent of iron-ore shipments to China, the biggest consumer, from Australia and Brazil, the biggest seaborne suppliers, go on capesizes, according to ICAP Shipping International Ltd., a London-based shipbroker.
Ore deliveries will total 1.06 billion tons this year, accounting for 29 percent of all dry-bulk shipping, according to Clarkson Research Services Ltd., a unit of the world’s largest shipbroker. About 90 percent of world trade is transported by sea, the Round Table of Shipping Associations estimates.
Mining companies will increase seaborne iron-ore shipments by 626 million tons through 2015, Morgan Stanley estimates. China, which now accounts for about two in every five tons of global steel production, will import 674 million tons of ore this year, according to the bank.
Hundreds of new ships will have been built before that expansion is complete, exacerbating the glut. Ship yards launched 375 capesizes since the end of 2008 and another 221 are on order, according to Redhill, England-based IHS Fairplay. The fleet now stands at a record 1,146 vessels, the data show.
The surge in ore supply may drive the commodity’s costs lower, eroding profit for the mining companies. Prices will drop to an average of $123 a ton in 2015, from $173 this year, according to the median in a Bloomberg survey of 10 analysts. Net income at Rio de Janeiro-based Vale will drop to $19.2 billion in 2015, compared with $27.6 billion this year, analysts’ estimates compiled by Bloomberg show.
Slowing growth may also erode demand. China, the world’s fastest-growing major economy, will expand 8.7 percent in 2012, compared with 9.3 percent this year, the median of as many as 10 economists’ estimates compiled by Bloomberg show. Japan, the second-biggest steel producer, will contract 0.5 percent this year after March’s earthquake and tsunami, the International Monetary Fund said Sept. 20.
China’s growth will still be fast enough to lift capesize rates above $20,000 as soon as next year, said Ole Stenhagen, the analyst at SEB Enskilda in Oslo whose recommendations on the shares of shipping companies would have returned 22 percent in the past year. Ole Slorer, an analyst at Morgan Stanley in New York, predict rates of $25,000 as early as 2013.
World War II
Mining companies may also respond to slowing growth by curbing supply. Iron-ore output fell 1.1 percent in 2008 and 5.3 percent in 2009 as the global economy was contracting in the worst recession since World War II, according to Morgan Stanley. A return to that trend may further delay the disappearance of the glut in shipping.
A combined measure of the earnings per share of the Bloomberg Pure Play Dry Bulk Shipping Index will drop 55 percent this year, according to data compiled by Bloomberg. Its biggest members are Seoul-based STX Pan Ocean Co. and D/S Norden A/S of Hellerup, Denmark. The gauge retreated 39 percent this year, compared with a 16 percent drop in the MSCI All-Country World Index of equities.
Any rebound in capesize rates may spur owners to order even more new ships, said Tufton Oceanic’s Vergottis, whose shipping fund manages about $1.5 billion of assets. Ship yards may also offer to cut costs to attract new business, he said.
“I don’t think we’ll be in break-even territory until 2015,” he said. “And that is only provided new ordering does not misbehave, either because of yards pushing subsidized slots or ship owners’ animal spirits not being reined in.”