Baltic Dry Index posts steepest fall in 10 months

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

31 Aug 2009

The Baltic Dry Index, a measure of shipping costs for commodities, posted its biggest monthly drop since October on plunging rentals for iron-ore carriers. Iron ore to make steel is the biggest single dry-bulk commodity hauled at sea, accounting for 25 per cent of the total in the second quarter, according to Drewry Shipping Consultants Ltd in London. Stocks of the material in China, the biggest iron-ore user, are 0.6 per cent short of levels last September, when they rose to the highest since at least 2006.
'They are trying to reduce stockpiles,' Hendrik Leusink, division executive for capesize and panamax vessels at Island View Shipping in Cape Town, said on Friday. 'There is hardly any incentive to bring in new raw material, and as ships free up, the supply side increases.'
Chinese prices for hot- rolled steel sheet dropped 7.6 per cent in August, showing demand for the metal may be weakening even as the government spends 4 trillion yuan (S$844 billion) on infrastructure and other projects to support the economy. China's cabinet said on Aug 26 it's studying curbs on overcapacity in steel, cement and other industries as policy makers seek to rein in investment growth. That may shrink the country's iron-ore needs.
The index tracking transport costs on international trade routes fell 4 points, or 0.2 per cent, to 2,421 points on Friday, for a 1.9 per cent retreat last week, according to the Baltic Exchange. It dropped 28 per cent in August, the biggest monthly decline in 10 months. The gauge won't be calculated today, when the UK has a national holiday.
Vessels are being delivered into the fleet, Mr Leusink said. A greater ship supply will force rates down without any increase in demand. The global dry-bulk fleet will expand 14 per cent to 492.8 million deadweight tons this year, according to Drewry estimates that exclude scrapping, cancelled orders and delays.
Daily rents for capesize ships that typically haul iron ore and coal slid 35 per cent to US$37,865 a day in August. Smaller panamaxes that compete for the cargoes and also carry grains dropped 32 per cent to US$17,303 a day.
Separately, the cost of shipping Middle East oil to Asia, the world's busiest route for supertankers, slumped for a seventh consecutive session in London as too many vessels competed for cargoes.
Rental income on the benchmark Saudi Arabia-to-Japan route fell 3 per cent to 30.78 Worldscale points, according to the London-based Baltic Exchange. That's a 20 per cent drop for the week. Income from the voyage after fuel costs slid 45 per cent to US$1,302 a day, the lowest for data going back to July 16, 2008.
'Charter rates have fallen dramatically since the second quarter because of the sharp increase in tanker supply, with the massive increase of new deliveries,' EA Gibson Shipbrokers Ltd in London said. That's 'combined with the fall in tanker demand as a consequence of the recession.'
Middle East members of the Organization of Petroleum Exporting Countries cut crude output by 3.7 per cent to 19.3 million barrels a day this year, according to Bloomberg estimates.
Over the same period, the carrying capacity of the fleet of very large crude carriers, or VLCCs, has climbed 6.4 per cent to 157 million deadweight tons, according to Lloyd's Register-Fairplay data on Bloomberg.

Source: Bloomberg