Friday, May 15, 2009
BDI keeps on rallying, up 267% from 2008 lows
Friday, 15 May 2009
The Baltic Dry Index is set to conclude its best rally since February, with dry bulk owners having something to cheer for, even modestly, after several gruelsome months. Yesterday, the BDI surged at 2,432 points, up by 100, or 267% higher than the low of 663 points of the previous December, led by the capesize sector, often seen as the industry’s benchmark. The Capesize Index rose by 153 points to reach 3,282 points, which translates to a daily average rate of $31,696, while some capes were reportedly fixed even above the $40,000 level.
The news of record Chinese iron imports during April, set at 57 million tons, is a tale of two sides. While it brought the Index higher, suggesting that the Chinese “machine” is back on track, it also bears news of concern, with Chinese officials appearing alarmed and threatening steel mills with a cut of financing if their production fuels a new oversupply. Brokers said that until a sustainable recovery of the steel industry is seen outside China, the dry bulk industry won’t escape its troublesome position.
Nevetheless, spot iron-ore prices are currently 28 percent less than the contract price of $92 a ton for Australian iron-ore fines, or powder, according to Metal Bulletin and Steel Business Briefing. The contract prices, traditionally annual, were set more than a year ago. Producers including Cia. Vale do Rio Doce and rivals are negotiating new prices.
Another factor of concern is the ship owners’ own stance. In similar previous rallies of the BDI (in the post-crisis era), market sources said that many owners turned back their ships heading for demolition, in order to secure one more voyage. This is quite irresponsible in terms of the greated good of the sector, despite the fact that many shipping companies are trying to gain their hands in as much liquidity as possible. But the fact is that the dry bulk fleet will have to be trimmed as fast as possible, if the sector wants to capitalize in the recovery of the world’s economy. Otherwise, the tonnage oversupply will prove disasterous.
For the time being though, Fearnley’s said in its latest weekly report that “with the lack of tonnage in the Atlantic and owners’ reluctance to ballast to Brazil, it is not unreasonable to expect the fronthaul rates to rise. In the east Rio and BHPB have continued to take tonnage pushing the rates up to usd 9.40 level. This now calculated much better than the present fronthaul market, encouraging owners to stay in the Pacific rather than fixing long duration frontahul business”.
Capesize forward freight agreements for the third quarter, used to bet on future shipping rates, rose 0.5 percent to $27,500 a day as of 3:51 p.m. in London, according to SSY Futures Ltd. Panamax FFAs for the same period fell 1.7 percent to $14,500 a day.
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