Published October 17, 2011
Baltic index rises to highest in 10 months(LONDON) The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, rose to its highest in over 10 months on Friday although the pace of gains slowed.
Brokers said growing vessel supply, which was outpacing commodity demand, was set to cap dry bulk freight rate gains in the coming months with economic uncertainty adding to headwinds.
The overall index rose 18 points or 0.84 per cent to 2,173 points in a eighth straight session of gains and was at its highest since Dec 7, 2010.
Prior to the move higher last week, it had fallen for six previous sessions.
'A solid end to the week for the big ships with West Australia extremely active this week and a significant volume of business done for October and some 1-15 November,' the Baltic Exchange said in its weekly report on Friday.
'Next week could see a slow start with Coaltrans in Madrid taking some players potentially out of the market,' it said, referring to the major coal and dry freight conference.
The recent dry freight market rally had been driven by firmer coal and iron exports from Australia and Brazil to China, which boosted the larger capesize market. Coal imports into Japan have also picked up.
Manufacturing in Australia had been disrupted earlier this year by floods, while Japanese industrial raw materials import demand had been affected by an earthquake which crippled a nuclear plant and threw its economy into disarray.
In August, the overall index, which gauges the cost of shipping commodities including iron ore, coal and grain, dropped to its lowest in more than three months after falling for 18 consecutive sessions. It has remained erratic and is still over 20 per cent down from the same period last year.
London clearing house LCH.Clearnet said on Friday that the recent rally had lifted the volume of over-the-counter volumes in September to its highest this year.
LCH.Clearnet, which handles over 70 per cent of cleared dry freight derivatives contracts, said 86,000 lots were cleared in September compared with a monthly average of around 71,000 lots so far this year.
'Freight volumes have rallied in recent weeks as a result of volatility in capesize rates and increased Chinese demand for iron ore shipments from Brazil,' the London clearing house said. 'Following a year of lower price volatility and weaker prices in general, September's results represent a welcome positive inflection in the market.'
The Baltic's capesize index rose 1.16 per cent on Friday, with average daily earnings reaching US$31,329 a day, and at their highest since the end of November last year.
'The BCI has kept pace with the market and has risen over the week,' broker Braemar Seascope said. 'Although the feeling is that these levels won't last past mid-next week, let alone the new year.'
Capesizes typically haul 150,000 tonne cargoes such as iron ore and coal.
The Baltic's panamax index rose 1.07 per cent. Average daily earnings for panamaxes, which usually transport 60,000-70,000 tonne cargoes of coal or grains, reached US$16,702 and at its highest since the end of March. Brokers said US wheat exports and coal sales to Asia were bolstering rates in both Atlantic and Pacific markets.
Worries over the health of the world economy have signalled more pain in the coming months for dry bulk ship owners, who face a glut of new vessels ordered when times were good.
'We remain optimistic in the short term; however, we see the risk of accelerated fleet growth and lower rates after the New Year,' broker Lorentzen & Stemoco said. -- Reuters
Trends still erratic and volatile.
Otherwise, a good forward indication of the state of the global economy