"Normally if there's a lot of momentum in the market, it's going to take a few days to really see an impact on the freight rates, but if Chinese steel stockpiles continue to decrease, China will eventually have to increase its steel production -- and that will increase their demand for iron ore," said Jeffrey Landsberg, a dry bulk industry expert at Commodore Research.
China is the single-largest global importer of iron ore, and a bump in shipments would mean more better capesize business for Genco and Baltic, and other shippers who rely on spot freight rates.
The current daily rate for capesize ships is $25,298, which is off a recent high of $30,000, but still above the $20,000 rate needed to operate above costs.
Landsberg said that in early September (which he refers to as "better times") roughly 25 capesize ships were chartered each week to transport iron ore to China. Over the last two weeks, however, only 11 vessels were chartered each week to haul iron ore to the country.
This trend already has started to shift.
"If you look at this week -- meaning Monday and Tuesday -- so far in the first two days of this week, nine vessels have already been chartered to haul iron ore to China," Landsberg said. "So there very well could be a light at the end of this tunnel."
Stocks in the volatile sector could use the lift.
(DRYS - Get Report)
is off more than 45% so far this year;
Eagle Bulk Shipping
(EGLE - Get Report)
is down nearly 70%;
Excel Maritime Carriers
has lost more than 47%; Genco has dropped 37%.
"Additional demand for iron ore is expected to come not only from increased steel production in China, but also from rebounding steel production in the rest of the world," Peter Georgiopoulos said.
-- Written by Joe Deaux in New York.
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