Baltic Dry Index Drops Below 1,000 for First Time in Six Years

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By Alistair Holloway

Oct. 28 (Bloomberg) -- The Baltic Dry Index, the benchmark for commodity shipping costs, fell below 1,000 for the first time in six years as the lack of credit curbed global trade and shipowners threatened to shun orders.

The index, watched by banks including UBS AG as an economic indicator, fell 66 points, or 6.3 percent, to 982 points, the lowest since Aug. 8, 2002. The gauge has dropped 89 percent this year, driving down the combined market capitalization of the 12- member Bloomberg Dry Ships Index, led by Athens-based Diana Shipping Inc., to $5.5 billion from $32 billion a year ago.

``You are getting very, very close to the cost of just crewing and running a ship,'' Richard Haines, a senior director at London-based shipbroker Simpson, Spence & Young Ltd., said in an interview today. ``It can't go much lower than this without owners deciding they don't want their ships employed.''

The International Monetary Fund predicts the world's advanced economies will next year grow at the slowest pace since 1982. The Bank of England today estimated losses on asset-backed debt, corporate bonds and other securities in the U.K., U.S. and Europe had more than doubled since April to about $2.8 trillion.

Zodiac Maritime Agencies Ltd., the shipping line managed by Israel's billionaire Ofer family, said this month it may idle 20 capesize ships, which typically haul coal and iron ore. That's about 5 percent of the fleet operating in the spot market.

Shipowners are also slowing down vessels to cut fuel costs. The average capesize is sailing at 8.54 knots, down from 10.33 knots in July. Capesizes are attracting rates of $7,340 a day, close to daily operating expenses of about $6,000, according to Henrik With, a shipping analyst at DnB NOR Markets ASA in Oslo. Daily rates for smaller panamaxes fell 8.1 percent to $6,413.

Failing Shippers

Fearnley Fonds ASA, an investment bank specialized in shipping, energy and oil services, expects ``significant'' numbers of commodity shippers to fail within two years. Industrial Carriers Inc., a Ukrainian operator of about 55 vessels, filed for bankruptcy protection this month.

The London interbank offered rate, or Libor, fell 4 basis points today to 3.47 percent for three-month loans, the British Bankers' Association said. It was the 12th straight drop.

The three-month Libor for dollars remains 197 basis points above the Federal Reserve's target rate for overnight loans of 1.5 percent, up from 81 basis points about three months ago. At the start of the year, the spread was 43 basis points.

Credit markets began seizing up after BNP Paribas SA halted withdrawals on three funds in August 2007. They froze after Lehman Brothers Holdings Inc. collapsed on Sept. 15.

Shipping lines are also having to contend with slowing growth in demand for most commodities. The S&P GSCI index of 24 raw materials has dropped 31 percent this month, its worst performance since at least 1970.

`Turbulent Conditions'

``Turbulent fiscal conditions have heightened uncertainty into the demand and supply outlook for all commodities,'' Citigroup Inc. analysts Alan Heap and Alex Tonks in Sydney said in a report.

OAO Severstal, Russia's largest steelmaker, and other producers are cutting output, sapping demand for iron ore and coking coal. The two commodities will account for about a third of the 3.2 billion metric tons of dry bulk goods shipped this year, according to Drewry Shipping Consultants Ltd.

To contact the reporter on this story: Alistair Holloway in London at aholloway1@bloomberg.net

 

 

as Adapted from Bloomberg.