URSABLOG: Bloody Market, Part II: Life Imitating Art

I finished off last week’s blog with the words of Nathan, first Baron Rothschild:

“The time to buy is when there’s blood on the streets, even if the blood is your own.”

Little did I know how prophetic these words would be. I published the blog on Friday evening, and then went for a walk in Monastiraki with my mother, who he was staying with me over the weekend. After something to eat and drink we came back and I saw the news of the disaster in Minas Gerais in southeastern Brazil. A tailing dam had broken, sending a wave of mud and mining waste from Vale’s Corrego do Feijao iron ore mine. The death toll will be over 300: lives wasted by corporate irresponsibility, communities devastated, despite safety measures supposedly put in place since 2015 when a similar deadly incident occurred.

My immediate thought however, if I am to be honest, was “What will happen to the dry bulk market now?” I am guessing I was not alone.

The next day my mother and I went shopping in Athens Central Market. I had invited some friends from different parts of the shipping industry to dine with us. We shopped around, and I had soon lined up a menu of prawns, calamari, fresh taramasalata, marinated sardines followed by slow roasted lamb with a sweet red wine source.

We got home, and I got to work. I cooked the prawns, cleaned and prepared the squid, and filleted two kilogrammes of sardines and put them in their terrines to marinade with lemon and capers. I prized fresh fish roefrom their sacs for the taramasalata, and got to work on the breadcrumbs, whizzing them with my new hand blender, of which I was very proud.

I made short work of the breadcrumbs and was just scraping the remainder from the blade with my left index finger when suddenly the blender started again, me, stupidly, having failed to unplug it before doing so.

My left index finger was blended briefly but effectively; it really is an excellent blender. I got up from my knees on the kitchen floor after some very choice Anglo Saxon (and Greek) words and washed my lacerated finger under the cold tap. My mother arrived on the scene was trying to help. At one point a frozen tupperware container of lentil stew was produced, but brushing that aside I wrapped my offended finger tightly in a towel.

I then did what everyone here does here in an emergency: I phoned a friend. That friend’s sister, a representative of a certain health insurance company, called me back, and we discussed my options. Five minutes later I was in a taxi with mother on my way to the emergency department of a hospital in Maroussi, north of the centre of Athens, in the meantime informing my guests by telephone that there might be a slight delay to dinner.

I was seen quite quickly by a doctor who had a half-amused air of world-weary cynicism about him, which I found strangely comforting. Not so comforting was his expression - and the choice swear words in Greek - when he unwrapped the bloody towel. He prodded my finger and asked me to move it around. I could not. He made a couple of calls, and then told me that I was not going anywhere that night because I would be operated on the following day because the tendon, at least, had been severed.

The following day, after a two-hour operation, I sat in the hospital bed, eating sweets and reflecting on my situation. Not only had my wonderful new blender cut through the tendon, it had also sliced through the nerve and the artery too, as well as fracturing the bone as well. It really is an excellent blender. According to the surgeon (hero! God-like! May he prosper for a thousand years!) I had almost lost my finger completely. I was a very lucky, if very stupid, boy.

My mum, despite her offer to postpone her departure, left on Tuesday as planned. Life with one functioning hand is challenging and I miss having her hands to help me, as well as her kind consolation, but her life must go on as well as mine.

In the meantime, the dry bulk freight market was plummeting like a stone, rapidly diving down towards historical lows, a fall accelerated by the news from Brazil. This is understandable, and even more understandable that the charterers are taking advantage of it, but whilst it is easy to blame this fall on the disaster, I think it is something of a knee jerk reaction that masks the more fundamental problem of oversupply, particularly for capesizes.

Ironically enough, on Wednesday I gave the Baltic Exchange / Institute of Chartered Shipbrokers masterclass on shipping cycles. Capesize rates featured heavily; the news from the frontline from professionals gathered there was not encouraging either. Nevertheless this did not stop us enjoying a few drinks afterwards. Life goes on.

Yesterday evening I gave a lecture to students of the ICS on the vagaries of the freight market. Using the Baltic daily fixture report we went through ship types, geography and freight rates, all in one go. What struck as we surveyed the carnage together, was that there was no lack of fixtures to report or use as examples. It is evident to me again that this is not a demand side problem, but a supply side problem exaggerated by negative sentiment. This needs correcting and soon. Others are attempting to do so already.

John Wobensmith of Genco has pointed out that the Feijao mine was already in a decommissioning stage and ‘only’ produced seven million tonnes of iron ore last year (around 16 valemax voyages or close to 40 capesize trips). He went on:

“I don’t see a medium term or long term effect in terms of actual volumes. Vale already had projected an additional fifteen million tonnes of additional production this year and Anglo American an additional eighteen million as they come back on line.”

Vale back this up: while they acknowledge that 40 million tonnes of production will be taken off line, this “will be offset by the increase in production of other systems of the company.”

This is fine as far as it goes, but I suspect that they are putting a brave face on what cannot, for now at least, be accurately measured. Vale think that 10% of current production will be halted but that will be offset by production growth of better-quality iron ore elsewhere. But let’s put this in context: 1.5 billion tons of iron ore is shipped annually by sea.

In the meantime the price of iron ore has jumped to just over $85 a tonne, an increase of almost 13% since last Friday’s disaster. Share prices in BHP and Rio Tinto have moved upwards as well. Vale might be able to keep iron ore shipments flowing, but this depends on the scale of the inevitable political and environmental backlash, and what Vale finds when the decommissioning process of some mines gathers pace. Will the politicians demand a full environmental audit? No one knows as yet.

We should also bear in mind that Vale already has about 30 million tonnes of iron ore sitting in their blending plants in China and Malaysia. Another factor to consider is the type of iron ore that is being lost out of Brazil – pellets – which commands a higher premium than iron ore fines, the majority of cargoes being shipped from Australia. It will not be easy to create new pelletising capacity quickly given the high cost (and a long time-lag) involved. The effects on tonne-mile demand are therefore unclear, and charterers are taking full advantage of this uncertainty. The Baltic Exchange reported four similar fixtures by Rio Tinto from Dampier to Qiungdao yesterday:

'TBN' 170,000/10 Dampier/Qingdao 19/21 Feb $5.00 fio 90,000 shinc/30,000 shinc - Rio Tinto - <fixed 30 /1>

'TBN' 170,000/10 Dampier/Qingdao 20/22 Feb $4.95 fio 90,000 shinc/30,000 shinc - Rio Tinto

'TBN' 170,000/10 Dampier/Qingdao 20/22 Feb $4.95 fio 90,000 shinc/30,000 shinc - Rio Tinto

'TBN' 170,000/10 Dampier/Qingdao 20/22 Feb $4.90 fio 90,000 shinc/30,000 shinc - Rio Tinto

Rio Tinto must be happy: rising prices and falling freight rates, a real ‘win/win’ situation for them. Today is no different:

'TBN' 170,000/10 Stanley Point, Port Hedland/Qingdao 14/16 Feb $4.80 fio 80,000 shinc/30,000 shinc - Roy Hill

'TBN' 170,000/10 Stanley Point, Port Hedland/Qingdao 14/16 Feb $4.80 fio 80,000 shinc/30,000 shinc - Roy Hill

In the meantime shipowners of all sizes of dry bulk carriers suffer. 2016 was supposed to be the bottom to end all bottoms: the next one was not due for another thirty years. And yet here we are with the BDI at 645.

The influence of a shock to the market depends on the trend of the market at the time. We were already in dangerous territory; news of the tragedy in Brazil just increased the downward trajectory. Shipowners are price takers in the freight market, otherwise their ships will be idle. Charterers cannot be blamed for taking advantage. Time will no doubt clarify the real picture, in the meantime life goes on today.

I must admit that, after the initial shock of the blender blunder I quite enjoyed the adventure. There was little pain: the nerve had been cut after all. It was only after two nights in hospital and after the surgeon left me that the effects of my stupidity sank in. My left hand is bound to a splint. Only my thumb is usable; I cannot move or grip the fingers at all. I have another three weeks before the steel pin is removed from the finger, and then another two weeks after that before I can use the fingers on my left hand at all. No use of my left hand for six weeks. Six weeks! No cooking, no riding on my Vespa and everything else including washing, dressing, even typing up this blog, taking a great deal longer than usual.

Unlike the freight market however I can see the light at the end of a long tunnel. If my blog is to become literally predictive (as opposed to utterly predictable), then I can only write that I think this is an oversentimental correction and the market will stabilise and rise soon, and if not back to former levels then at least to rates less punitive to owners.

In the meantime, the only advice I can give are: take time to consider your decisions before you act and don’t clean the blade of your new blender with your finger. It may seem like a good idea at the time but the bloody consequences may be more severe than you expect.

Simon Ward

www.ursashipbrokers.com