Dry bulk market’s correction “spills” over onto new week

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Oct 2011

The dry bulk market is losing steam, as evidenced by the falls experienced last week, which were also apparent at the beginning of the new week. A lot of this fall is stemming from the fall of steel prices in China, which is pushing steel mills’ margins to near

break-even levels, which in turn are causing them to limit their iron ore purchases. Yesterday, the Baltic Dry Index (BDI), the industry’s benchmark, was down by 2.63% to 1,965 points. The biggest losses were obvious in the Capesize sector, with the Baltic Capesize Index (BCI) losing 4.34% to 3,132 points. Similarly, all other shipping segments were down, with Supramaxes retreating the most (after Capesizes) to 1,531 points, down by 0.91% on the day.
According to the latest weekly report of Paris-based shipbroker Barry Rogliano Salles, there were substantial losses across the board this week: the BDI lost 6.3% to end at 2,018 and the BCI 8.2% to end 3,274. In the smaller sizes the losses were more constrained: the BPI dropped -4.3% to 1,939, the BSI -4% to 1,545 and the BHSI -4.8% to finish at 786. “Speculation is now rife concerning the fall in the iron ore price and whether it signifies a longer term trend in China. Ore prices experienced the biggest ever 7-day fall last week, and prices for immediate delivery of benchmark iron ore into China fell to $120/ton on Friday, down from $181 on 7 September” said the report.
It went on to mention that “historically, demand for ore has softened in China in September and October, but has recovered in the build up to Christmas as the country faces the worst winter conditions. This year the slump has lasted longer than normal, with low steel prices and credit problems discouraging buyers. However the current spot price is close to the break-even production price for Chinese domestic producers, suggesting to many that the international price will not fall much below that. Though CISA says it believes the price will fall further, other sources say there is no change to the fundamentals and buyers are withholding purchases in order to see where the market shakes out” said BRS.