Baltic Dry Index keeps on dropping throughout October

Baltic Dry Index keeps on dropping throughout October
Published: 27 October 2008

Late October saw the all important Baltic Dry Index trading below 1000 points. The continuous slump has seen the index dropping to 982 points, from an all-time high of 11,793 points last May. This halt in dry bulk trade is seen as linked to the aftermath of the financial and credit crisis which hit the world markets from the middle of September. Banks are hesitant in releasing letters of credit, traders are reluctant to take chances and the global steel industry is also witnessing a  drop in demand. Therefore, cargoes are scarce, demand for ore carriers has slumped and as a result freight rates have collapsed.

For those who have lived through several shipping cycles, the signs of a contracting market are all too familiar. Slow steaming, and in extreme cases, vessel lay-up are the classic hallmarks of a market struggling to adapt supply to demand.

The medium-term future remains uncertain as well. China’s steel production is now expected to remain flat at 500Mt in 2009, compared to earlier growth forecasts of 5-10 per cent. And as talks for the 2009 ore contracts officially start, the balance of power is quickly shifting back to ore buyers.

Meanwhile plans by the mining groups to pursue more spot sales are also falling by the wayside as spot prices tumble. It all points to another keenly debated round of negotiations.

In the all-important Panamax sectors rates continue to drift downwards, showing no signs of abating – a simple case of too many ships and not enough enquiry, coupled with the credit/iron ore pricing/ currency/recession issues which continue to dictate the market – reports broker Barry Rogliano.

This trend has also been mirrored in the  Handy/Handymax market sectors with late October fixings indicating that the average of the time charter routes opened this last week at almost US$12,000 but ended close to US$8,500. Open positions, be they spot or forward, are now plentiful. Demand has faded away and some areas such as India, where positions far exceed available cargoes, can now be considered a real bloodbath for owners – says Rogliano. The Nan Hai (45,000 dwt, built 1996), which was fixed at US$1,000/day from west coast India to USG, illustrating the situation.

Only the Continent is providing a small flow of grain cargoes for the Handies, and is now sufficient to attract tonnage open in the Med, where the situation is bleak. Meanwhile, the USG does not offer any real alternatives  as grain exports, which normally support the market at this time of the year, are almost nil. At best, Supramaxes are getting US$12,000 for a trip to Med or Continent.

In the Asian sectors, coal or nickel ore movements from Indonesia are not enough to absorb all the tonnage around, bearing in mind that newbuilding deliveries are further adding to the tonnage imbalance. Rates now hover around US$8,000 for Supramax round voyages.

Period activity remained limited meanwhile, even though some players still consider the market is offering opportunities, such as the Eitzen fixture of the Gecon 1, delivery China for 4-6 months at US$9,250/day.

Clarkson’s latest weekly report also reports that “prevailing turmoil in the financial markets and steadily declining freight indexes have also left the second hand market in a continued state of disquiet”. It continues by stating that concluded arrangements for vessels at prices difficult to justify in the light of the current financial and trading climate are renegotiated or falling altogether.

The demolition market has similar stories to tell. Prices in India and Bangladesh now stand at about US$200-250/LT, about the same as China offers.

This week saw the sale of the ’Hebei Pioneer’ (138,000dwt, 18,300 LDT) at about US$250 per LT, and the ’New Eastern Star’ (138,000dwt, 21,160t LDT) at about US$220 per LT.