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Fall in Baltic Dry Index raises concerns among shipping companies

Tuesday, 07 February 2012 | 00:00
The Baltic Dry  Index, a measure of shipping costs for dry bulk goods, on Friday plunged to its lowest level after it touched 647 points, nearly 20 points lower than the previous low of 663 points recorded during the 2008 global financial meltdown.
In the past 26 years since the Baltic index came into being, the index had never slipped below 650 points and the current fall in the Baltic has raised serious concerns among shipping companies.
"At this level, it is difficult to even recover wages for employees. None of the shipping companies will be able to operate under these circumstances and we have to wait and watch what happens now," said JN Das, director, Shipping Corporation of India (SCI). Shipping analysts, meanwhile, are expecting SCI to post massive losses in the current financial year.
The Baltic dry index has been falling steadily over the past one month even though shipping analysts had predicted a recovery of sorts for the shipping sector in 2012. Sea-borne traffic was expected to rise 20-25% in 2012 from the 1,500 level in 2011, but the alarming drop this year - it plunged by more than 62% - has left analysts clueless about the much-expected recovery.
"The recent fall in the freight rates is the combination of oversupply and low demand. While new additions increased the prevailing oversupply situation in the industry, the dual effect of rise in Chinese iron ore inventory and the Chinese new year this January reduced demand for vessels," says Bharat Choda, analyst at ICICI Direct.
China had declared a week-long holiday for the lunar new year celebrations starting from January 23 to January 28, and the surplus iron ore inventory in the country has reduced the demand for iron ore, affecting the struggling global shipping sector.
In addition, the adverse weather conditions in Brazil and two tropical cyclones in Australia have also affected iron ore shipments and port operations.
According to London-based Clarksons, the fleet of dry-bulk commodity carriers will expand 14% this year compared to a 3% gain in seaborne volumes of minerals and grains, which is a major cause of worry since the over supply of vessels in the market is the main reason for the significant fall in Baltic.
"We cannot put a time frame on the recovery. The key problem remains the over supply of vessels and as long as there is no fall in the order book and the trade does not pick up, the sector will continue to face pressure," said Yudhishthir Khatau, president, Baltic and International Maritime council, the largest association of shipowners.
The Baltic Dry Index is issued daily by the UK-based Baltic Exchange, and has been in existence since 1744. It tracks the worldwide international shipping prices of major raw materials and dry bulk cargoes by sea, including grain, iron ore, coal and other fossil fuels.
Source: Economic Times
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