Iron Ore Prices in China Seen Spurring Demand for Import Cargoes

Chinese iron ore prices exceeded the cost of imported cargoes for first time since mid-December, a development that may boost demand for ships delivering the raw material, RS Platou Markets AS said.

Domestic supply is about 50 cents a metric ton more expensive than cargoes shipped to Tianjin, a port in the north east of the country, the first time since Dec. 10 it’s been higher, the Oslo-based investment bank said in an e-mailed report today. The so-called arbitrage determines how profitable it is for traders to buy from overseas, Platou said.

“A further widening of the arbitrage will be positive for seaborne demand and could lift Capesize rates ahead,” Platou said. Capesizes, the biggest dry-bulk vessels, carry about 90 percent of seaborne iron ore.

Imported ore with 62 percent iron content, which rose to the highest since October 2011 on Feb. 20, slid 1.1 percent to $151.90 per dry metric ton today, its third consecutive retreat, according to the The Steel Index. Locally produced ore with the equivalent iron content rose $146.89 on Feb. 22 from $142.35 on Feb. 4, data from Beijing Antaike Information Development Co. compiled by Bloomberg show.

The supply of spot iron ore has been restricted because the largest miners are selling a higher proportion of cargoes under long-term contracts to the largest steel mills in China, Macquarie Research said in a Feb. 22 report. Prices gained even as smaller mills curbed inventories and output amid uncertain construction demand for steel, the biggest driver for iron ore buying, the investment bank said.

Capesize Rates Slump

About 100 million tons a year of domestic ore supply will return to the Chinese market from March as mines restart to take advantage of higher local prices, the bank estimated.

Average hire costs for the global fleet of 1,513 Capesize ships slid for a 12th day, declining 2.5 percent to $5,088 daily, according to the Baltic Exchange, a London-based assessor of freight costs. Capesize rates haven’t exceeded operating costs of $7,758 daily, minus fuel, since Jan. 28, according to figures from the exchange and Moore Stephens LLP, a London-based accountant.

A cyclone this week that’s closed ports in Western Australia, the biggest exporting region, is cutting shipments and reducing cargo availability, RS Platou said.

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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