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Tuesday, May 19, 2009

Baltic Dry Index crosses 2,600 point mark, posts 12th straight rise

Tuesday, 19 May 2009

The rally of the dry bulk freight market, as expressed by the Baltic Dry Index kept its momentum on Monday, with the BDI rising to 2,605 points up by 61 points, now standing 292 percent higher from the low of 663 points, reached in the beginning of the previous December. Still the index is 77,9% lower from the all-time highs reached almost a year ago , but this recent rally has helped many ship owners take advantage of a better spot market, clinching some good deals. With the dry bulk market firming, one thing seems to be certain, that the global economy is back on track towards resuming trade activity, while most banks seem to have stabilized, reissuing the so needed for trade of commodites letters of credit. This is why the BDI rose 15% during the previous week.
Despite the sharp fall of iron ore trade in most countries of the developed world, China’s resurgence as a major buyer of the commodity, has helped the index regain some of the lost ground. The capesize sector, a benchmark for the industry was yesterday’s main “star”, with the relative index gaining 119 points ending the session at 3,600 points, while the average daily time charter has now reached $35,369. If these rates prove to be sustainable and manage to increase even more at more than $40,000, many shipping companies will fare better and avoid catastrophe. The level of improvement in the market can also be seen in smaller vessel types, where after almost eight months, the panamax sector is finally higher than the smaller supramaxes. Panamaxes’ average daily hire rates are now at $20,121, according to data from the Baltic Exchange, while those of supramaxes stand at $18,679. For many months, it was the opposite case.
Besides iron ore, this year’s wheat harvest proved a surprising factor, with Macquarie Bank saying that this year’s world production will be the second highest on record. It may well prove that the fourth quarter of 2008 was the one where the dry bulk industry hit its “bottom”, far quicker than other sectors of the global economy.
Further steps have been made in limiting tonnage supply, as many owners are scrapping their older vessels, while cancelling or delaying vessel deliveries for as long as they can, in the hope that when they hit the water, the market and the global economy will be in far better shape than today. Still, estimates from Drewry Shipping Consultants indicate that the dry bulk fleet will expand by 42 percent this year, as well as the following to reach 602.6 million dwt. But, should the industry keep scrapping vessels at last week’s pace of almost 500,000-dwt, things can improve. New orders placed with China’s shipyards fell 95 percent during the first four months of this year, while things aren’t very different in Japan and South Korea. This means that when today’s still massive orderbook comes to conclusion by the end of 2011, the market’s fundamentals could very well turn again in favor of ship owners, leading to a new, this time more reasonable growth for the dry bulk industry.