Baltic dry freight rates fall on economic fears

Fri Jun 1, 2012
By Soma Das
June 1 (Reuters) - The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, fell on Friday as economic fears and low iron ore trade volumes pulled capesize and panamax contracts lower.

The overall index has fallen for nine straight sessions to its latest settlement of 904 points, down 12.6 percent since last Friday.

The Baltic dry index has shed about 48 percent in value since the beginning of the year as the market remains oversupplied and new vessels continue to enter the market.

Analysts see further declines in the index as likely in the next few months due to weakening economic growth, affecting steel consumption in China in particular.

China's economy showed signs of a broadening slowdown as its official purchasing managers' index fell to 50.4 in May from April's 13-month high of 53.3, signaling a deeper-than-forecast deterioration in demand at home and abroad.

"Supply and demand indicates that a weak fundamental situation will remain for most of 2012," RS Platou Markets analyst Frode Morkedal said.

A recovery in the Chinese economy coupled with a slower fleet growth in the long term would lead to a gradual recovery of freight rates.

"An upside potential for dry bulk demand would be economic stimulus in China, which could influence tonnage demand positively in the latter part of this year, if enacted," Morkedal said.

Capesize rates were down 1.59 percent, shedding 21 points to 1,298 points.

Average capesize daily earnings dropped $222 to $4,814.

Capesizes typically haul 150,000 tonne cargoes such as iron ore and coal.

The Baltic's panamax index was even weaker, falling by nearly 2.82 percent, or 26 points, to a settlement of 897.

Average daily earnings for panamaxes, which usually transport 60,000-70,000 tonne cargoes of coal or grains, were down $210 to $7,138.

Average daily earnings for handysize and supramax ships were up at $9,217 and $10,694, respectively.

"While the two bigger segments are weighed down by a slowdown in Chinese demand for both coal and iron ore, supramaxes and handysizes are taking advantage of the underlying demand for dry bulk commodities," Arctic Securities analyst Erik Nikolai Stavseth said.

Supramax rates have averaged $9,600 a day so far this year, 37 percent above capesize rates at $7,000 a day, Stavseth pointed out.

This suggests the overall demand in dry bulk is not bad and that rates were falling mostly due to oversupply of tonnage, Stavseth said, adding that he expected an uptick in rates in the second half of the year.

(Reporting by Soma Das in Bangalore, editing by Jane Baird)