Baltic Dry Index seen to remain sluggish

Petaling Jaya: The Baltic Dry Index, which tracks commodity shipping rates, is expected to remain sluggish as China becomes less dependent on imported iron ore.
A year-on-year drop in iron ore imports for three consecutive months from April to June showed that China had become less dependent on foreign sources.
“China’s iron ore imports fell by nearly 3% in April compared with the same period of last year, by almost the same amount in May and nearly 15% in June.
“In sharp contrast, domestic iron ore output increased by a large margin. China produced more than 485 million tonnes of iron ore in the first half of this year, an increase of 106.4 million tonnes, or more than 28%, from the same period of last year,” said China Iron and Steel Association reported by People’s Daily Online.
The index has been quite erratic this year, peaking at 4,209 points on May 26 before plunging to its lowest level year-to-date at 1,700 points on July 15.
It inched up to close at 1,978 points on Aug 5.
To recap, Vale of Brazil and Australia’s BHP Billiton and Rio Tinto, the world’s three largest iron ore producers, have changed the iron ore annual pricing system to a quarterly system effective April 1, where the new quarterly price is based on the previous quarter’s average spot price.
The China Iron and Steel Association was reportedly unhappy with the changes but had to comply as two-thirds of the country’s iron ore is imported.
Iron ore is the main commodity carried by dry bulk vessels alongside coal, various types of grains, cement and chemicals.
Nevertheless, according to Bloomberg report, the current cost of hauling iron ore by ship jumped the most in 10 weeks as traders moved to capitalize on a 72% plunge in rentals from this year’s peak.
“Charter rates for capesize-class vessels climbed 8%, the most since May 25, to US$16,596 a day on Aug 5, according to data from the London-based Baltic Exchange.
“Rentals gained 4.5% on the route between Tubarao in Brazil and the Chinese port of Qingdao, the most important in the world for dry-bulk shipping because of the voyage’s length,” according to the Bloomberg report.
Kenanga Research in its report stated that Malaysian Bulk Carriers Bhd (Maybulk), the biggest dry bulk shipping company in Malaysia, was cautiously positive this year, although they expected the freight market to remain robust.
“They still have reservations on the European countries being able to resolve their national debts issues,” said Kenanga.

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