Record Ocean Freight Hits Steel Makers

Large bulk carrier market surged to renew record in the week. The price is 4 times higher from Brazil to Far East and near 5 times from Australia to Far East from the recent bottom of first half of 2006. The iron ore freight is US$ 62 per tonne from Brazil to Far East, which is higher than around US$ 50 per tonne of Brazilian iron ore FOB price. Chinese aggressive iron ore import and demurrage at Australian coal shipping ports lift the ocean freight market. With the high price, Japanese steel industry’s raw materials transport cost could increase by more than 70 billion yen for fiscal 2007 from previous year. Cape index of Baltic Exchange hit record US$ 156,650 per day for cape size bulk carrier charter from Brazil to Far East on Wednesday. The market is lifted when Chinese iron ore keeps high at annual 400 million tonnes pace, which represents 70 million tonnes higher than 2006. World largest iron ore supplier, CVRD expects the world iron ore seaborne trade increases by 65 million tonnes to 790 million tonnes in 2007. With the higher demand, large bulk carrier supply is very tight with limited supply. Japanese integrated steel makers secure around 80% of raw materials carriers through long term contract but the 20% of the spot charter is vulnerable for the market. Japanese integrated steel expects the higher spot freight market could increase the industry’s cost by more than 40 billion yen. The industry could increase the surcharge payment for bunker oil by more than 20 billion yen in the year. They are also forced to increase spot charter to cover demurrage loss, which also increases their freight cost.