Star Bulk Carriers Corp.’s (SBLK) management has commented that commodities and raw materials have experienced substantial price corrections with oil, iron ore, and thermal coal prices recording a drop of 32%, 49%, and 21%, respectively, on a year-over-year basis. Weakness in commodity markets is mostly supplier-related and not demand-related.
Management further added that commodity demand remains healthy, while substantial supply expansion has resulted in surpluses across various commodity markets. The company believes that these low price levels and the related trade arbitrage suggest an incentive for importing countries to continue to source commodities carried through the international seaborne market. This will benefit industry (SEA) peers such as Diana Shipping Inc. (DSX), Knightsbridge Shipping Ltd (VLCCF), Navios Maritime Holdings Inc. (NM), and Eagle Bulk Shipping Inc. (EGLE).
Analysis of China’s viewpoint
Star Bulk’s management states that Chinese crude steel production growth stands at 4% year-on-year, lower than ~10% growth last year. For the same period, Chinese steel exports recorded an increase of 54% year-on-year, which might not be a sign of weak domestic market as many analysts suspect, but may be due to the trade arbitrage between Chinese and US steel prices.
With steel prices are performing better than iron ore and coking, Chinese steel mills production margins increased substantially. Historically, the cost to produce one ton of crude steel in China was 73% of its selling price, while currently it stands at only 54%. These factors support the revival of Chinese crude steel production growth.
Chinaese iron ore imports
Chinese iron ore imports have grown year-over-year by 13%, mainly due to the substitution of domestic production by imports and inventory buildup. Aside from increases in the volume of iron ore imported to China, the source of imports and the average differences are also very important for ship owners like Star Bulk Carriers Corp. (SBLK). Meanwhile, ton miles growth was lower at 9%.
Star Bulk's deliveries for 2008–2012 average delivery slippage stood at ~30% compared to ~39% in 2013. Forecast delivery slippage is at 35% for 2014 and 40% for 2015.
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