Dry Bulk Weekly – July 11, 2010

Baltic dry index fell 16.6% last week; The hardest hit were Panamaxes with 20.6% loss; Capesizes lost 20.0% ; Handysizes and Supramaxes lost 10.3% and 8.9%.

Chinese tax rebates on hot-rolled coil and some cold-rolled coil and galvanized products will be removed starting July 15. This makes Chinese steel exports uncompetitive and it is moving the markets. Chinese steel mils now have to choose whether to reduce capacity and cost or go bankrupt.

Both steel and iron ore prices are falling due to the removal of tax rebates. Forward steel curve for some steel grades in China has moved to backwardation (spot prices higher than future prices). So, I suppose they have to liquidate inventory (and they have plenty of it) at fire-sale prices.

Liquidation of both iron ore and steel  inventory reduced the short term need for marine transport (probably will reduce the longer term need as Chinese steel mils will not export it’s excess steel at dumping prices). The dry bulk market is suffering hard and this is not coming to an end as port congestion is easing off ( fell probably by a third).

Chart 1. Baltic Dry Indexes Relative Performance

Source: Bloomberg

Chart 2. Baltic Dry Index

Source: Bloomberg

Chart 3. Baltic Dry Index Components

Source: Bloomberg

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This entry was posted on Sunday, July 11th, 2010 at 11:57 am and is filed under China, Commodities, Dry Bulk Weekly. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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