Baltic Dry Index Advances to Record in London on Chinese Demand

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

17 May 2008

Commodity shipping rates jumped to a record on increasing Chinese demand for iron ore and may advance further as rising finance costs curb growth in shipbuilding. The Baltic Dry Index, a measure of costs to move everything from coal to grain, gained 418 points, or 3.9 percent, to 11,067 points on the Baltic Exchange in London. Chinese steel production has expanded more than fourfold in a decade, forcing the nation to step up imports of coal and iron ore from Australia and Brazil to feed its furnaces. The country, the world's most populous, is also the biggest consumer of metals including copper, nickel, zinc, tin and aluminum. "The main thing is iron ore coming out of Brazil and Australia,'' Peter Norfolk, an analyst at London-based shipbroker Simpson, Spence & Young Ltd., said by phone yesterday. ``Steel prices globally are very, very high so steel production is very strong, particularly in China.''
China's steelmakers imported a record 42.9 million metric tons of iron ore in February, beating the previous all-time high set in April by 4.7 million tons, according to data from the China General Administration of Customs on Bloomberg. Stockpiles of the raw material, at 62 million tons, are also at a record.
The delivery of as much as 10 percent of new ships faces delay or cancellation because of tighter credit markets and rising steel costs.
``There are not sufficient ships open in the Atlantic,'' David Webb, a director at London-based Arrow Chartering Ltd., said by telephone today. There are delays in China which ``are a new theme, a couple of days here and there. If that becomes a factor it would have a massive effect.''
Congestion Worsening
Simpson, Spence & Young's Norfolk also said congestion at Chinese ports is worsening.
The loss or delay in deliveries of about 250 cargo ships, or 10 percent of orders, will tighten the supply of vessels and support rates when demand from China and India for everything from soybeans to coal has never been greater.
The Bloomberg Dry Ships Index, which includes 12 shipping companies, has gained 75 percent in the past year, compared with a loss of 6 percent for the Standard & Poor's 500 Index. STX Pan Ocean Co., a Korean shipping company, and DryShips Inc., an Athens-based shipper, have more than doubled. The Baltic Dry Index has risen 65 percent in a year.
Tighter credit, brought on by the $329 billion in writedowns by the world's banks and securities firms because of the collapsing mortgage markets, is taking a toll on the record level of ship orders that was expected to increase capacity and rein in rates. Costlier steel and the instability of less established shipyards are adding to the uncertainty.
Touring Shipyards
Sophocles Zoullas, chief executive of New York-based Eagle Bulk Shipping Inc., toured shipyards in China and South Korea last month, and said he has heard of 100 cancellations this year. Zoullas predicted 10 percent to 30 percent of orders for cargo ships will be delayed or canceled.
Urs Dur, an analyst with Lazard Capital Markets, forecast 10 percent of orders will be canceled or delayed, and Omar Nokta, an analyst with Dahlman Rose & Co., estimated 9 percent.
The Baltic Dry Index includes vessels ranging from handymaxes, capable of hauling 50,000 metric tons, to capesizes, which carry loads of as much as 170,000 tons.
Capesize rental rates climbed to 3.8 percent to $203,520 a day; panamaxes, the second-largest, advanced 6 percent to $84,637 a day.

Source: Bloomberg