Dirty bulk ships used to carry iron ore are being scrubbed clean so that they can transport grain to Asia, in an unusual shift of cargoes prompted by a slump in demand for the steelmaking ingredient.
China’s downturn in the housing market has weighed on iron ore, driving freight rates for bulk carriers down 50 percent from a year earlier. That has made it more attractive for some of the world’s biggest agriculture traders to book iron ore vessels for shipments of corn and soybeans.
While the number of such cargo switches are relatively small, it is the latest shift by traders wrestling with dramatic changes in commodities markets sparked by Russia’s invasion of Ukraine and China’s weakening economy. The war has created extreme volatility in global grain markets, allowing trading houses such as Cargill Inc to post bumper profits.
Large iron ore ships typically stay away from grain as it involves a time-consuming cleaning process to make the vessels safe for carrying food. Washing a huge cargo hold dirty from iron ore is a necessary step to ensure that consumers of the grain do not ingest rust, metallic sand or dirt.
Before picking up grain, cleaning gangs have to lower themselves by winch into black-stained cargo holds. They blast water and chemicals against the walls before using brushes to scrub out gunk and then siphon the muddy water away.
The deep-cleaning process can cost between US$7,000 and US$8,000 and requires a few extra days of chartering, one trader said.
This could extend to a week and require shipyard workers to sand down and repaint the walls if the dirty coating cannot be removed.
The ships of choice are Baby Capes, the smallest of Capesize vessels with a carrying capacity of about 91,000 tonnes. That is much bigger than Panamax bulk vessels that normally carry grain and hold about 54,000 tonnes.
The depressed iron ore trade this year could be pushing Baby Capes to seek “alternative employment,” said Ralph Leszczynski, head of research at shipbroker Banchero Costa & Co.
The main allure for switching is price, despite the extra cleaning cost. In the first 10 months of this year, it was cheaper to hire a Capesize vessel than a Panamax by an average of US$5,200 per day, the most for that time period since data going back to 1999, Arrow Shipbroking Group said.
China’s COFCO International Ltd (中糧國際) and US-based Archer-Daniels-Midland Co and Cargill have booked about four Baby Capes to deliver grain to Asia next year from South America, people with knowledge of the matter said.
COFCO International said it has recently booked its first Baby Cape vessels to transport soymeal from Brazil to Southeast Asia next year.
“Initially it comes down to simple economies of scale — the more we load, the cheaper the freight cost is for our customers, and the lower the carbon footprint,” COFCO International global head of freight Alessio La Rosa said.
A spokesperson for Cargill said it routinely uses Baby Capes for grain and other shipments, and expects to use more of such vessels.
Other commodities:
‧?Gold for February delivery fell US$5.60 to US$1,809.60 an ounce, posting a weekly gain of 3.17 percent.
‧?Silver for March delivery rose US$0.41 to US$23.25 an ounce, jumping 8.49 percent from a week earlier, while March copper rose US$0.03 to US$3.85 a pound, up 6.06 percent from a week earlier.
Additional reporting by AP
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