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Friday, April 03, 2009

Dry bulk market's weakness more persistent than estimated

Friday, 03 April 2009

In a day when some good news spread out for the fortunes of the world economy, the Baltic Dry Index kept falling, ending the session at 1,538 points, down by another 36 points from Wednesday. It will now be the fourth straight week of fall from the year-highs of almost 2,300 points. Meanwhile, yesterday a series of economic news triggered a stock rally worldwide, since after months it seems that the global economy is showing signs that the crisis might be bottoming out. Factory orders rose in the US, the G-20 pledged almost $1 trillion to help global financial institutions like IMF and the World Bank to see through their stimulus plans, while home prices rose by 0.9% in the UK a first in more than 18 months.
Apparently, these news weren’t enough to trigger a rebound of the dry bulk freight market, at least for now. The Capesize Index of the Baltic Exchange has been retreating to end yesterday at 2,001 points (down by 38 on a day-to-day basis), while average time charter daily rates stood at $17,453, almost half of what ship owners could achieve just six weeks ago. And once again, the supramax sector keeps overtaking the larger ship type of panamaxes. The average time charter rate for supramaxes is standing at $13,072, against a mere $9,881 for panamaxes.
According to Fearnley’s latest weekly report, the cape market continues to soften with rates sliding slowly. The broker said that “the fronthaul is relatively inactive with a few re-lets and Vale picking up tonnage at subindex levels. Rio has been the most active after their recent force majeur. The period market has been very quiet with no fixing at all”.
At the same time, analysts and market players seem divided. An analyst at KGI Securities said this week that iron ore demand will likely remain sluggish, as production levels remain low, as a result of carmakers and builders who are cutting output, while companies need time to lower massive inventories. That said, KGI Securities expects the BDI to drop even further even at 1,000 points as we are heading into the weak shipment season of the middle of the year. After all, this has been the case historically, with the index declining in the second quarter in 17 of the past 24 years.