Baltic index higher, capesizes at over 1-yr high

Monday, 12 December 2011

The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, rose for a third day on Friday helped by firm iron ore trade to China with earnings for the larger capesizes jumping to their highest in over a year.
Nevertheless, the shipping sector is expected to see more turmoil in coming months as a supply glut and growing economic gloom keep earnings under pressure with growing worries over the outlook for Chinese raw materials demand.

The overall index rose 40 points or 2.13 percent to 1,922 points.
"Despite the demand headwinds from muted steel production in China and slowing industrial production, the capesize segment has been remarkably resilient. Mix of factors including higher port congestion, recovery in coal exports from Australia and increasing Chinese iron ore imports from Brazil, aiding tonne mile have supported the segment," RS Platou Markets said.

"Declining steel output and slowing industrial production remains a key challenge going into 2012 for dry bulk demand and we still expect rates to see a gradual decline."
China's industrial output growth hit its slowest pace in more than two years in November and inflation tumbled as economic conditions deteriorated, raising expectations Beijing will ease monetary policy again.

Iron ore shipments account for around a third of seaborne volumes on the larger capesizes, and brokers said price developments remained a key factor for dry freight.
Shanghai rebar futures dropped for a second day on Friday, weighed down by a weak outlook for steel demand in top market China after fresh data suggested the Chinese economy was cooling off rapidly, although hopes of further monetary easing capped losses.

Capesizes, which typically transport 150,000 tonne cargoes such as iron ore and coal, had driven a recent rally, helped by firmer coal and iron ore exports from Australia and Brazil to China as well as a pick-up in Japanese coal imports. A build-up of port congestion also provided support.
The Baltic's capesize index rose 4.76 percent on Friday, with average daily earnings rising to $32,617 and at their highest since November 2010.

In August, the overall index, which gauges the cost of shipping commodities including iron ore, coal and grain, fell for 18 consecutive sessions and reached its lowest in more than three months. It has remained erratic and is still down over 12 percent from the same period last year.

The Baltic's panamax index rose 1.18 percent. Average daily earnings for panamaxes, which usually transport 60,000-70,000 tonne cargoes of coal or grains, reached $$13,682.
"In the Pacific, the Christmas holiday lull is biting further and business conditions have continued to slow, with much of owners' focus on securing sufficient employment duration to see their (panamax) vessels past the holiday period," broker Braemar Seascope said. "The outlook for the remainder of the year is still flat/negative."

Growing ship supply, which is outpacing commodity demand, is set to cap dry bulk freight rate gains in the coming months, with economic uncertainty and a slowdown in China adding to headwinds.
Daewoo Shipbuilding & Marine Engineering said on Friday it had lost an order from a European customer, including two dry bulk vessels, worth over half a billion dollars in a sign of worsening conditions in the seaborne sector and a growing euro zone lending squeeze.

Source: Reuters