The Impact Of Mining Giants, The Capesize Bulk Carrier Market Out Of Control

- Apr 26, 2018-

The large number of bulk carriers being constructed by the mining giants, including Vale, apparently caused a huge impact on the spot market for Capesize bulk carriers. Traditional shipowners and operators are losing market "control." marine industry


The world’s largest oil and gas giant, France’s Louis Armourer (LDA), recently announced its decision to withdraw from the spot market for Capesize bulk carriers, acknowledging that the market has now been firmly controlled by mining giants. This news triggered market shocks and thinking - who actually controlled the spot market for Capesize bulk carriers? Did the giants of the mining industry really control the spot market for Capesize bulk carriers?


According to Peter Sand, chief shipping analyst at BIMCO, the Capesize bulk carrier market is largely a spot market and is the world's largest mining company and commodity trader controlling iron ore and coal cargo.

"Because the balance between large-scale charter companies and smaller shipowners has been broken, freight negotiation is often dominated by top miners," said Peter Sand. welding overlay flange


“The spot market for Capesize bulk carriers still has a major impact on other markets. Recently, compared to other markets, you often see the spot market for Capesize bulk carriers in the other direction. The past six weeks have been the latest case.”


Ralph Leszczynski, research director of Banchero Costa, also believes that the limited cargo types and trade routes of Capesize bulk carriers (especially Australia-China and Brazil-China) will naturally allow big mining companies to take advantage.


Leszczynski stated: “The regularity of transactions means that the large-scale transport of iron ore and coal through long-term chartered contracts and private or time chartered vessels leaves a relatively marginal role for the spot market. The spot market is volatile because When problems occur, charterers tend to have more and resort to the spot market—they need to replace ships that have missed appointment dates, or respond to sudden and unexpected increases in demand, rather than routine day-to-day operations.” pipe fittings


George Nordahl, a dry bulk analyst at Affinity Research, believes that when LDA decided to withdraw from the spot market of Capesize bulk carriers, it made cautious judgments on the medium to long-term prospects.

Nordahl noted that Newcastle-type bulk carriers and VLOCs, which are usually controlled by miner giants, have flooded the market, providing a more cost-competitive tonnage for the traditional routes dominated by the 180,000 DWT Capesize bulk carriers. He believes that in today's Asian-centered market, the design of Capesize bulk carriers is of little significance. In this market, the flexibility of trade in the Atlantic is not so important.


“At present, 90 VLOC and 50 Newcastle-type bulk carriers are under construction, with a total deadweight tonnage of 40.48 million dwt. Nordahl believes that taking into account these vessels, especially VROC, which accounts for 75% of the total, will use COA as iron ore. With the backing of transportation, it is hard to imagine that the existing Capesize bulk cargo ships can benefit from the spot market,” added Nordhahl. “The existing 72.2% of Capesize bulk carriers are under 10 years of age. On the supply side, It is also doubtful whether the additional capacity generated by the delivery of larger ships can be digested.”  pipe spooling


Nordahl said: "I would like to say that large-scale miners do not control the spot market as such, but their strategic decision to build a super-large ore sands ship to sign a long-term contract is likely to have a negative impact on the freight rates in the spot market."


MSI believes that it is wise for LDA to withdraw from the spot market of Capesize bulk carriers because MSI believes that the global iron ore trade peaks in 2020, following structural market changes in the next five years. The decline has affected the demand for long-term contracts for Capesize bulk carriers in both regions. Therefore, shipowners who accept this view need to reconsider their operational strategies in the Capesize bulk carrier market before this happens. slip on flange


 Randy Giveans, Jefferies vice president of equity research, said: "I would not say that the bulk market is controlled by anyone on the ship's supply side."


For example, he said that if Vale decides to reduce production or curb exports, this will have a very negative effect on bulk ship owners. If the mining company decides to increase exports, it will have a positive effect.

In short, Giveans believes that owners/operators do not have much “control” because they are price receivers, but almost all commodity transporters are.