The Baltic Dry Index, a measure of shipping costs for commodities, posted its biggest weekly advance in a seven-week streak on a 'tight' supply of capesize ships to haul coal and iron ore.
The index tracking transport costs on international trade routes rose
157 points, or 4 per cent, to 4,111 points yesterday, according to the
Baltic Exchange. That's the highest since June 3 and a 21 per cent
weekly gain. Rates to hire capesizes surged 31 per cent this week to
US$76,534 a day.'The current tonnage situation remains tight, and with demand remaining strong, there is no immediate sign of slowdown in the capesize market,' Rikard Vabo and Lars Erich Nilsen, analysts with Oslo-based investment bank Fearnley Fonds ASA, said in a note yesterday before the exchange data were released.
Rates rose most, increasing 7.5 per cent, for capesizes on the route from Western Australia to Qingdao in China, a benchmark for the iron-ore trade. China is the biggest user of the steelmaking material, which is the largest dry-bulk commodity hauled at sea. The country is injecting 4 trillion yuan (S$812.13 billion) into its economy, boosting public works and potentially driving up raw-material demand.
The iron-ore market should be undersupplied next year and in 2011, Jason Fairclough, a London-based analyst with Bank of America Merrill Lynch, said in a report dated yesterday. The market is 'significantly tighter' than forecast at the beginning of the year, and China has been the 'key surprise', he said.
Iron-ore stocks at Chinese ports have fallen to 65 million metric tonnes as of yesterday, Omar Nokta, head of research at Dahlman Rose & Co in New York, wrote in an emailed note. If that were confirmed, it would be an eighth weekly decline in nine. 'We expect increased iron-ore spot shipments over the past several weeks to begin to make landfall in China in coming weeks,' Mr Nokta wrote. That may reverse the inventory drop, he said.
Rates to hire capesizes will average US$49,500 daily in the first quarter of 2010, according to forward freight agreement data from Imarex ASA at 3.05pm in Oslo. That implies a 35 per cent slide from current spot prices. FFAs are used to bet on or hedge against future dry-bulk freight rates.
'People are factoring in fundamentals,' Jan Bagger, a director at London-based Clarkson Securities Ltd, a unit of the world's biggest shipbroker, said by phone yesterday. They now include a time when China's iron-ore restocking is completed and also a 'decent size' fleet of new vessels taking to the water, he said.
The dry-bulk fleet's capacity will rise 33 per cent by the end of 2010 to 597.2 million deadweight tonnes, according to estimates from Drewry Shipping Consultants Ltd in London.
Source: Bloomberg