Tue May 8, 2012
May 8 (Reuters) - The Baltic Exchange's main sea freight index, which tracks rates for ships carrying dry commodities, inched higher on Tuesday as Chinese interest in buying iron ore kept rates steady for large capesize vessels.
The overall index, which gauges the cost of shipping commodities such as iron ore, cement, grain, coal and fertiliser, rose 8 points or 0.69 percent to 1,165 points.
"We expect the same trend seen last week to continue, with capesize average rates to slowly climb on the back of tight tonnage in the Atlantic while panamax rates are likely to fall on seasonally slower activity," RS Platou Markets analyst Frode Morkedal said.
The Baltic's capesize index rose 3.11 percent to 1,625 points.
Rates for capesizes, which typically transport 150,000 tonne cargoes such as iron ore and coal, were up $915 at $8,763, highs not seen since mid January.
Despite sluggish steel demand in China, the world's biggest consumer and producer, the country's steel output remained high as mills tend to continue to produce more, keeping the demand for raw material iron ore steady.
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.
"Mills have ramped up production on an expected recovery of steel demand which has been slow so far, with the inventory build-up leading to declining steel prices for the third straight week, Morkedal said.
The Baltic's panamax index fell for the 6th straight day, dropping 5.63 percent to 1,441 points hurt largely by a decline in South American grain fixtures.
The daily earnings for panamaxes, which transport 60,000 to 70,000 tonne cargoes of coal or grains, were down at $11,505.
Growing ship supply, which is outpacing commodity demand, is set to cap dry bulk freight rate gains in the coming months, with economic uncertainty and a slowdown in China adding to headwinds.
"While we expect shifting trade volumes to drive volatility in dry bulk rates, we expect the oversupply of tonnage to keep rates relatively weak over the near-to-intermediate term," Wells Fargo analyst Michael Webber said in a note.
The overall index, that reflects daily freight market prices for capesize, panamax, supramax and handysize dry bulk transport vessels, is down about 33 percent this year.
(Reporting by Soma Das in Bangalore; editing by Keiron Henderson)
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