Throughout 2014, all eyes were turned toward an end of year rebound, but it did not materialize. Shipping companies and others in the dry bulk market looked optimistically to what forecasters predicted would be a 4th quarter recovery, but its failure to manifest has caused a deep depression in the dry bulk market. Many shipping companies pinned their hopes on this promise of resuscitation, speculating and keeping their ships short or on spot in the belief that when the recovery came, they would be able to secure employment at much higher rates. Now that the recovery has failed to arrive, those shipping companies are hurting. The dry bulk fleet grew only by 4.5% in 2014, the smallest growth since 2003. Public companies are revising EPS estimates downward, adding more misery to the situation.
Dry bulk shipping companies are not the only ones feeling the pinch. China’s inventory of iron ore has been declining for the past six weeks, sitting at its lowest level since February. At China’s 33 major ports, week 2 inventory was only 96.6 million tons, 1% less than the previous week. Hoping to improve the situation, China is fast-tracking 300 construction projects worth $1.1 trillion USD that will result in a slight increase in its steel consumption. Nevertheless, the low price of iron ore currently, balanced against expensive mining operations, means that the majority of its northern mines that were shuttered all winter will not reopen in March as expected.
A few glimmers of good news
Brazil and Australia saw some good news in spite of the overall global dry bulk market depression. Brazil broke a record in December, exporting 37.4 million tons of iron ore. Australia’s coal exports from the port of Newcastle also exceeded historic performances, reaching 15.8 million tons in December, an increase of 16% over November. Australia exported 159 million tons of coal in 2014, a significant increase over 2013 exports of 133 million tons.