* Fleet growth set to act as a drag on market
* China iron ore stockpiles growing
By Jonathan Saul
LONDON, Oct 19 The Baltic Exchange's main sea freight index , which tracks rates to ship dry commodities, inched higher on Wednesday although a potential pullback in Chinese iron ore imports would put the put the brakes on a recent rally in the larger capesize market.
Brokers said the market was watching to see if weaker-than-expected Chinese economic data issued on Tuesday would signal a pullback in raw materials demand, which would dent the dry freight market already struggling with a glut of vessels.
The overall index rose 4 points to 2,140 points.
"We still think rates in the capesize segment will remain firm going forward. Imported iron ore prices are on the decline and rapidly coming in competition with lower-grade domestic ore which will shift the pendulum towards imports," said Arctic Securities analyst Erik Nikolai Staveseth.
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 in March that crippled a nuclear plant and threw Japan's 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 percent down from the same period last year.
The Baltic's capesize index rose 22 points on Wednesday, with average daily earnings reaching $29,918 a day. Last week capesize rates had hit their highest since November 2010.
Capesizes typically haul 150,000 tonne cargoes such as iron ore and coal.
Jeffrey Landsberg, managing director of dry bulk consultancy Commodore Research said a fall in Chinese steel prices this week could put pressure on capesize rates.
"If prices continue to decrease and stockpiles stay high, near term Chinese steel production would remain likely to suffer a decline," he said.
"In addition, Chinese iron ore production has remained robust which is putting pressure on global iron ore prices and Chinese iron ore fixture volumes this week."
The Baltic's panamax index slipped 13 points. Average daily earnings for panamaxes, which usually transport 60,000-70,000 tonne cargoes of coal or grains, reached $16,708.
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.