A major Chinese shipowner is arguing that the dry bulk crisis caused by a dam disaster and multiple mine closures in Brazil is "irrational" and that a revival must be on the cards as Brazilian export volumes swell throughout the rest of this year.
The state-owned company, whose research officials shared the shipowner's views but declined to be named, is not alone in its optimistic stance.
Others agree that the spot market has taken an exaggerated hit beyond the effect on actual export volumes.
[The] impact so far is primarily on the market sentiment and on the spot freight market more than on actual physical trade
"[The] impact so far is primarily on the market sentiment and on the spot freight market more than on actual physical trade," said Ralph Leszczynski, head of research at Banchero Costa.
Reluctance to offer cargoes
"Vale themselves are at the moment unsure how much their production will be cut in the coming months, and given that they have a number of contractual agreements where they would have to pay penalties if they are unable to fulfil their volume commitments, they are now extremely reluctant to offer any cargoes on the spot."
One view held by several players is that Vale will make up for its lost production during the second half of this year through alternative sources, leading to a revival of the dry bulk shipping market recovery.
On the other hand, the China Newbuilding Price Index is dismissing the Brumadinho dam disaster as not the cause but a mere trigger for a long-term dry bulk collapse that was inevitable because of excess shipping supply and could last more than 10 years.
The optimists concentrate their case on the demand side.
Vale has already recovered significant volumes, at least potentially, after a Minas Gerais court approved reopening the 30 million tonne Brucutu mine, said the state-owned Chinese shipowner in an analysis provided to TradeWinds.
Its research department believes Vale's production is down only by half as much as it was in the wake of the dam collapse on 25 January.
That, together with other cargoes from Vale and added volumes from rival Anglo American's Brazilian plant, should create real year-on-year growth for the country's iron-ore exports.
The Baltic Capesize Index is expected to gradually recover from the irrational low level caused by panic
Chinese shipowner's officials
"The Baltic Capesize Index is expected to gradually recover from the irrational low level caused by panic," the company officials said.
But even if closed mines take a while to reopen and resume full production, the Chinese owner expects Vale to add some 30 million tonnes in the north of Brazil from its S11D project.
It cites Brazilian government trade statistics that indicate S11D's iron-ore export volumes increased by 68% to 12.1 million tonnes in January and February alone.
“With strong internal ability of self-regulation, [Vale] is fully capable of reducing the actual impact of shutting down capacity in the south through internal reallocation of resources,” the Chinese owner’s research team said, referencing the resumption of exports from Anglo American’s Minas Rio project in December.
The owner argued that there is still room for growth in spot volumes even allowing for the Valemax effect.
With 11 more 400,000-dwt monsters rolling out this year, Valemaxes should carry about 10 million more tonnes of iron ore this year. The Chinese owner thinks that leaves about five million tonnes of new ore for the spot market.
Another shipowner close to Vale expects the company intends to source ore from independent Brazilian mines that can easily be plugged into Vale's transportation network.
Vale itself is less encouraging than the Chinese owner. In a conference call last week, it put the best case level of disrupted ore production at 50 million tonnes and the worst at up to 75 million tonnes.
Some 50 million tonnes of theoretically available idle capacity could take up to three years to reopen, Vale told investors.
Both the Vale conference call and the Chinese owner's analysis were issued before more bad news emerged this week on the shortcomings of Vale's tailings dams, possibly delaying mine reopenings further.