March 14 (Bloomberg) -- Demand for iron ore, the biggest dry-bulk cargo moved by sea, may weaken after Japan’s strongest earthquake on record disrupted steel output, potentially hurting a recovery in the Baltic Dry Index, shippers say.
“There will be an impact on iron-ore cargoes,” Tim Huxley, Hong Kong-based chief executive officer at Wah Kwong Shipping Holdings Ltd., said by phone. “There will be a correction downwards” in the Baltic Dry due to a reduction in demand, Huxley said, without giving a precise forecast.
The main gauge of commodity shipping costs has rallied 50 percent since touching the lowest level in more than two years last month. The northern Tohoku region most affected by the March 11 temblor and tsunami represents about 8 percent of Japan’s gross domestic product.
There may be a “big” short-term impact on demand for iron ore, coal and steel after the quake, though Japanese shipments may revive in six months, said Kong Fanhua, a senior researcher at China Ocean Shipping (Group) Co. Kong said it was too early to assess the likely impact on the index.
The Baltic Dry Index, a composite of indexes for four vessel sizes, ended at 1,562 points on March 11, gaining for an 11th session. The index reached a low of 1,043 points on Feb. 4.
“Japan is very important for this steel industry,” said Huxley. Wah Kwong, through its subsidiaries, owns and operates a fleet of bulk carriers. Iron ore is the main material used to make steel and Australia and Brazil are the principal exporters.
Nippon Steel Corp. and JFE Holdings Inc., Japan’s largest steelmakers, have restarted furnaces at factories near Tokyo after halts triggered by the quake. Sumitomo Metal Industries Ltd., the third-largest producer, won’t likely resume operations at its Kashima plant north of Tokyo “for a while,” Chairman Hiroshi Shimozuma told reporters in Osaka.
The earthquake caused temporary “panic” in the iron-ore market though its impact is likely to be limited as mills restart, Hu Muzhong, the managing director of Hong Kong-based Central Minerals Co., said in an interview.
“There’s some panic in the iron-ore market,” said Hu, whose company trades about $300 million worth of steelmaking raw materials a year, including 3 million metric tons of iron ore. “The impact of the quake is more psychological. The steel plant closure in Japan, in my view, won’t take more than two months because governments are now more capable in crisis control.”
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