Higher Ocean Freight Hits Japan Steels’ Iron Ore, Coking Coal Transport Cost

International spot market price of large bulk carrier keeps increasing. Iron ore freight is US$ 102 per tonne from Brazil to Japan, which is more than iron ore price. The freight is 2 twice of a year earlier level and 37% higher than average in fiscal 2007 ended March 2008. The market is lifted by strong demand for iron ore and aggressive buy by mineral majors, according to Japanese sources. With the high market, Japanese steel makers’ freight cost could increase by more than 120 billion yen including higher energy cost for fiscal 2008 from fiscal 2007. Cape size bulk carrier charter market exceeded US$ 100 per tonne for Brazil-Japan in mid-May after temporally drop to less than US$ 50 in January, according to Japanese shipping firm and integrated steel makers. The freight of Australia-Japan is US$ 45, which is 1.5 times of a year earlier level and 40% higher than average in fiscal 2007. The tight freight market could continue for a while when the carrier supply is limited during first half year of 2008 though the supply increases from second half of 2008. Cape size bulk carrier supply is tight when seaborne iron ore trade increases by more than 50 million tonnes per year in recent years while the carrier supply is limited to around 50 per year along with congestion. Japanese integrated steel makers cover around 80% of the iron ore and coking coal transport through long term contract with shipping firms while the steels cover around 20% through the sport market charter. With the higher market, the steels’ cost for transport of iron ore and coking coal could increase by annual 84 billion yen for fiscal 2008 in certain case. They are also suffered from higher bunker oil cost, which represents around 40 billion yen cost up for the fiscal year.