February 1, 2012 / 5:46 PM / 7 years ago

Baltic sea index slumps to 25-year low

* Capesize earnings stays below operating cost level

* Main index falls below levels seen during 2008 turmoil

By Jonathan Saul

LONDON, Feb 1 (Reuters) - The Baltic Exchange’s main sea freight index, which tracks rates to ship dry commodities, fell to a more than 25-year low on Wednesday as a slump in cargo business and a mounting glut of vessels battered sentiment.

The overall index fell 18 points or 2.65 percent to 662 points, falling below the 663 point low hit on Dec. 5, 2008 during the financial crisis and its lowest since 1986.

“Despite the return of Chinese players from holidays, fixture activity has so far failed to recover,” RS Platou Markets analyst Frode Morkedal said.

“We note almost non-existent spot bookings in line with the past weeks, likely a result of a wait-and-see stance being adopted by charterers. Tonnage lists continue to expand, postponing any major recovery in rates.

The shipping sector in coming months is expected to face a supply glut and glum economic outlook, including concerns over Chinese demand for raw materials, which will pressure earnings.

Weather and other disruptions in Australia and Brazil last month together with slower restocking due to an earlier Lunar New Year holiday in China this year have hit cargo activity in recent weeks.

“Chinese New Year was on Jan. 23 this year, the earliest since 2004. If history has anything to tell us, there is such as a thing as a post-New Year boost when it comes to the dry freight market, and it may yet be on its way,” broker ICAP Shipping said.

Iron ore shipments account for around a third of seaborne volumes on the larger capesizes, and brokers said price developments remained a key factor for dry freight.

Capesizes, which typically transport 150,000 tonne cargoes such as iron ore and coal, drove a rally late last year, helped by firmer coal and iron ore exports from Australia and Brazil after earlier weather disruptions as well as a pick-up in Japanese coal imports. A build-up of port congestion also provided support.

The Baltic’s capesize index fell 0.07 percent on Wednesday, with average daily earnings sliding to $5,327, their lowest since March 3 last year.


Operating costs for capesizes were estimated around $7,500 to $8,000 a day.

“While some modest improvement is possible as charterers return to the market after the holidays, we continue to expect the dry bulk rate environment to remain generally weak through the balance of 2012,” Wells Fargo Securities senior analyst Michael Webber said.

The overall index, which gauges the cost of shipping commodities including iron ore, coal and grain, has fallen nearly 60 percent since the start of the year.

“Given the state of the dry bulk market, any positive will be sorely welcome,” Arctic Securities analyst Erik Nikolai Stavseth said.

The Baltic’s panamax index fell 4.14 percent. Average daily earnings for panamaxes, which usually transport 60,000 to 70,000 tonne cargoes of coal or grains, reached $5,515 a day.

Growing ship supply, which is outpacing commodity demand, is set to cap dry bulk freight rate gains in the coming months, with economic uncertainty, a financing squeeze and a slowdown in China adding to headwinds.

“With continued double-digit fleet growth expected in 2012, the sector is likely to see a continued oversupply for the next 12 months,” Deutsche Bank analyst Justin Yagerman said in a report.

“However, we would still expect rate volatility throughout the year, with seasonally strong rates in Q4. Beginning in Q1, we believe rates will remain seasonally weak through the end of summer.” (editing by Jane Baird)

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