Dry Bulk Shipping Fundamentals Remain Tough
Tracking China’s port inventory
Iron ore inventory levels at Chinese ports can impact purchasing decisions because they reflect the safety net and the imbalance between iron ore supply and steel mill demand. When the Chinese market (MCHI) rises, shipping stocks tend to rise, as well. When inventory levels are low, importers may restock. This encourages iron ore shipments. However, when inventory levels are high, importers likely postpone new orders.
Inventories declining
China’s iron ore port inventory has been declining consecutively for the past five weeks. For the week ending September 18, inventories stood at 80.55 million tons, according to the data collected from 44 ports in China by SteelHome. This is slightly higher than the previous week’s inventory of 80.05 million tons. However, inventory has been more or less on the downtrend. It had fallen for five consecutive weeks until September 11.
Inventory levels impact dry bulk players
Lower inventory levels lead to more demand for iron ore to build up stocks to be later used by steel mills.
This could mean a short-term increase in rates for vessels needed to transport iron ore from Australia, Brazil, and other seaborne export destinations to China. Mainly Capesizes and Panamaxes are used to transport iron ore.
This could have a short-term positive impact on the Guggenheim Shipping ETF (SEA). It would also be positive for dry bulk shipping companies including Navios Maritime Partners (NMM), DryShips (DRYS), Star Bulk Carriers (SBLK), and Scorpio Bulkers (SALT).
Investors can also consider the SPDR S&P Metals and Mining ETF (XME) for exposure to the diversified metals space.
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