Baltic Dry Index market nearing the 2000 point marks
Sunday, 04 Oct 2009
It is reported that with the Baltic Dry Index dangerously nearing the 2,000 point mark is becoming more and more apparent that the market is suffering from a steady increase in tonnage supply, as many new buildings are hitting the water. At the same time, China appetite for commodities like iron ore, seems to be fading away at the moment, as steel prices have been steadily plunging in China, which in turn causes many steel companies to cut down their production.
As a result of that the Baltic Dry Index has been falling for more than two months, now standing at 2,163 points, a four month low and significantly lower than the almost 4,291 points it had reached early in June. As the index shows, demand for larger bulkers like capesizes and panamaxes has been reduced, as a result of China’s lower appetite for iron ore imports and a bit less coal imports. Panamaxes suffered the most during recent sessions with the relative index losing 79 points down at 2,357.
According to customs data in recent months Chinese demand for iron ore the primary material in the manufacture of steel has dominated freight market activity while also adding to swings on the main index. China commodity imports slowed rapidly in August as local demand began to look sated. Chinese iron ore imports fell 14% in August from July and coal imports slid 15%, a second consecutive monthly decline. The drops were due to rising global costs and domestic supplies.
The estimates show that at the same time, just to give you a hint of how important type of trade is iron ore and coal in the dry bulk market, iron ore will account for 28% of all dry bulk commodities hauled at sea this quarter, according to forecasts from Drewry Shipping Consultants Ltd in London. Also, coal burned for power will make up by 18% and coal to make steel will comprise 8 percent.
According to Oslo based specialist investment bank Fearnley Fonds ASA net growth of the dry bulk fleet has quickened to between 8% and 9% in the past couple of months, compared with about 3% in the Q1. The portion of capsizes tied up in congestion has dropped to 4 percent of the fleet from 14% to 15% earlier in the summer. The vessels typically carry coal and iron ore. Not to mention the fact that port congestion in China as well as off Australia which had previously tied up a large number of Capesize vessels now appears to have eased, consequently hurting Capesize rates.
It appears that the freight market for dry bulk vessels will have to fall even further in the near future, before it manages to pick up again. China will have a major role in that and will once again be the driving force, but analysts expect more countries regaining their form and increasing trade for commodities worldwide. European and Japanese buyers of iron ore are already returning to the market, but until a sustainable course of recovery can be established in the world economy, the shipping market will keep on suffering, as a result of the major increase in tonnage supply, compared to the overall cargo demand.
