Coal, Ore Shipping Rate Rises to Record; Index May Break 9,000

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

28 Sep 2007

Coal and iron ore shipping rates may extend gains to records this week on rising demand to transport raw materials across the Pacific and the Atlantic amid a limited supply of vessels. The Baltic Dry Index, an overall measure of commodity - shipping costs on different routes and ship sizes, advanced 3.9 percent to 8,956 on Sept. 21, setting a record for a second day, according to data on the London-based Baltic Exchange. This year, the measure has broken records for a total of 83 days. ''There seemed to be no stopping the market as it rocketed'' in both the eastern and western regions last week, London-based shipbroker Galbraith's Ltd. said in its report. The Baltic Dry Index ''is threatening to break through the 9,000 barrier.'' Charter rates for tankers have more than doubled in the past year, boosted by rising demand for raw materials led by China, the world's fastest-growing major economy. Congestion in major ports including Australia's Newcastle, the world's biggest coal- export harbor, has supported dry-bulk shipping rates. The North American grain export season is helping boost charter rates, which are typically strongest in the fourth quarter. ''It has been an active spot market from Brazil to the Far East as well as for round voyages in the Pacific,'' for the panamax market, Oslo-based shipbroker Pareto Dry Cargo AS said in its Sept. 21 report. A panamax carries as much as 70,000 metric tons of coal, iron ore or grain. The Baltic Dry Index jumped 7.9 percent last week, helped by gains in the futures market, shipbrokers including Lorentzen & Stemoco AS said.  In the market for Freight Futures Agreements, or FFAs, the October contract rate for a panamax carrier on the trans-Pacific route jumped 11 percent last week to $77,813 from a 4.3 percent slump the week before. FFAs are used to speculate on or protect against swings in the cost of transporting commodities. ''The futures have come back, adding more petrol to the fire,'' Stuart Frost, a Singapore-based broker at Norway's Lorentzen & Stemoco, said in a phone interview on Sept. 21. ''People are using paper to book period tonnage, to lock it in and that's just driving the market higher. The owners ask for more. The futures are assisting sentiment incredibly.'' The Baltic Dry Index's record-breaking trend will persist and may reach 10,000 by year end, according to Deutsche Bank's analyst Joe Liew in a Sept. 17 research note. China and India's industrialization, longer distances traveled by bulk carriers and supply constraints because shipyards are full until 2010, are likely to drive rates higher next year and in 2009, Liew said.