Monday September 17, 2012
Baltic Dry Index nears record lows
By SHARIDAN M. ALI
PETALING JAYA: Dry-bulk shipping seems to be heading south with the Baltic Dry Index (BDI), the barometer that gauges dry-bulk shipping rates, nearing record low levels year-to-date.
The BDI on Sept 13 was at 663 points, close to this year’s record low of 647 points on Feb 3.
The current level of BDI also reflected a deep dive from this year’s highest point of 1,624 points on Jan 3.
Weekly analysis showed that the BDI reached a high of 666 points on Sept 10 and fell to 661 on Sept 12 before climbing to 663 points on Sept 13 last week.
At 663 points, the BDI has retracted 64.7% from 1,876 points a year ago.
The industry is plagued by a supply glut that still cannot be absorbed by the current demand.
In general, the time charter equivalent for all ship sizes in the industry – capesize, panamax, handymax and handysize – continues to be below the level that shipowners can earn some decent profit from their assets and services.
Besides oversupply, the dry-bulk shipping business also relies on the demand to transport iron ore, coal and various types of grains.
To illustrate the volatility of the industry, the BDI pre-global economic crisis peaked at 11,793 points on May 20, 2008 before plunging to 666 points on Dec 3, 2008, at the height of the crisis.
Analysts do not see any light at the end of the tunnel for the industry with the gloomy economic environment brought on by the eurozone crisis and the slowdown in China’s economy.
A maritime analyst Nazery Khalid told StarBiz that it was encouraging to see the BDI had shown signs of recovery, albeit tentative.
“Demand for dry-bulk items like iron ore and coal is slowly recovering as industries re-stock their inventories.
“This has been most noticeable with steel mills, especially in China, which have started to order iron ore in some volumes. This has been the main factor propelling the recent upward momentum of the dry-bulk trade and its performance barometer, the BDI,” he said.
However, Nazery cautioned that the persistent entrance of new tonnage of dry-bulk carriers into the trade was going to throw a spanner in the works.
“The delivery of bulkers in the panamax and capesize class is especially eyebrow-raising. In my opinion, it doesn’t appear that the glacial-like recovery in trade can outpace the arrival of huge new capacity.
“All it takes is for demand for key dry-bulk commodities like iron ore and coal to slow down again – say from the impact of a hard landing in China’s economy and the worsening of the eurozone crisis – for the rebound to be dampened,” he said.
Moreover, he said several shipping analysts had observed that production of iron ore was showing signs of slowing.
“Couple this with the relentless arrival of newbuildings into the trade and you will have a double-whammy blow to the prospect of the trade staging a convincing, sustained recovery in the near future,” he said.
According to CIMB Research, dry-bulk shipping rates continue to hover at very low levels and shipowners hope for a major rebound in the fourth quarter, similar to the last quarter of 2011.
“Nevertheless, the outstanding question among brokers is what will happen to Chinese demand for iron ore in the final quarter of the year.
“Last year’s restocking at China’s steel mills was a welcome surprise that salvaged some profitability for many cape owners by the year-end and pushed time charter rates up to around US$55,000 per day for Brazil-China voyages and over US$30,000 for trips from Australia,” the research house said in a report.
“Some small private steel mills have to restock in the short term, but there seems to be no significant rebound,” said CIMB Research said, quoting an iron ore trader in Shanghai.
A Bloomberg News report on Sept 11 quoted Jeffrey Landsberg, president of Commodore Research & Consulting, a New York-based adviser to ship owners, as saying the oversupply of vessels was no longer just capesizes, but was the entire market, putting great pressure on rates.
“Overall cargo demand is moderate,” he said.
The news wire also stated that shipowners continued to contend with an oversupply of dry bulk vessels, according to a report from Michael Webber, an analyst at Wells Fargo Securities LLC.
The amount of bulk-commodity cargoes would increase by 4% this year to about 3.9 billion tonnes, according to Clarkson Plc, the world’s largest shipbroker.
Clarkson also anticipates that the ships’ combined carrying capacity, already at a record, will grow 13% to about 699 million deadweight tonnes.