Baltic sea index down, brokers expect China recovery

Mon May 14, 2012
May 14 (Reuters) - The Baltic Exchange's main sea freight index, tracking rates for ships carrying dry commodities, fell on Monday for a fourth day on slowing demand and bloated tonnage lists, but brokers expected a recovery in Chinese demand due to a cut in reserve requirements for banks.

The overall index, a gauge of the cost of shipping commodities such as iron ore, cement, grain, coal and fertiliser, fell 6 points or 0.53 percent to 1,132 points.

Brokers said the dry bulk market will likely see renewed optimism as China, the major commodity demand driver, lowered banks' reserve requirement ratio.

China's central bank on Saturday cut the amount of cash that banks must hold as reserves, freeing an estimated 400 billion yuan ($63.5 billion) for lending to head-off the risk of a sudden slowdown in the world's second-largest economy.

"We see the cut as a positive delta for dry bulk as higher loans to the market will likely support construction activity and provide steel mills with sorely needed sales which will spill over to the dry bulk market," Arctic Securities analyst Erik Nikolai Stavseth said in a note.

However, RS Platou Markets analysts said the persistent weakness in construction spending and still over supplied markets would probably cap any dry bulk recovery.

The Baltic's capesize index lost 0.12 percent to 1,612 points.

Rates for capesizes, which typically transport 150,000 tonne cargoes such as iron ore and coal, were down $65 at $8,595.

After a slight recovery, weak Chinese demand has weighed on rates for the large capesize vessels.

China steel futures fell to more than four-month lows on Monday, pressured by slow demand in the world's biggest consumer which has curbed appetite for raw material iron ore and pulled down prices to levels last seen in February.

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.

The Baltic's panamax index fell 1.74 percent, with average daily earnings down $189 at $10,361.

Panamax spot rates have been falling on a drop in seasonal South American grain fixtures coupled with oversupply of vessels.

"Weak enquiry for grain cargoes in South America and ballasting ships to the Atlantic have resulted in an over supplied Panamax market," Deutsche Bank analyst Justin Yagerman said in a report.

Further, weather issues appear to have reduced nickel and other minor bulk cargoes from Indonesia, he added.

The main index, which factors in the average daily earnings of capesize, panamax, supramax and handysize dry bulk transport vessels, has fallen about 35 percent this year.

(Reporting by NR Sethuraman in Bangalore; Editing by Anthony Barker)