Baltic Dry Index falls on bearish outlook

The Baltic Dry Index (BDI), which has been falling since mid-December, is expected to be under pressure going forward as a new supply of vessels are delivered over the next one to one-and-a-half years.
Industry observers expect the availability of new vessels to further place downward pressure on freight rates of dry bulk commodities as the pace of global growth slowed, affecting demand.
“This will surely have an impact on rates because we’re seeing more vessels coming onstream.
“There needs to be a higher cancellation of orders,” an analyst with a foreign brokerage told StarBiz.
The BDI, which tracks transportation costs of major raw materials by sea, tumbled 4.75% to 1,544 on Thursday.
However, reports show that the oversupply situation would likely persist into this year and possibly into the next, on a demand-supply imbalance and the lower rate of the scrapping of old vessels over the past year.
The drop in the BDI is also caused by shutdowns of coal and iron ore mines in Queensland, Australia.
However, that is seen as a temporary phenomenon.
“While the flooding in Australia has affected shipping rates since there is fewer cargo to be transported, this is only temporary.
“What’s of more concern in the long term is the oversupply of vessels,” an analyst pointed out.
According to Bloomberg, quoting data from shipbroker Clarkson plc, coal and iron ore made up 58% of all dry bulk goods transported in 2010.
Freight Investor Services research director Peter Norfolk told Bloomberg that the drop in coal cargo “has probably taken a chunk out, for the time being, in terms of fixture activity”.
“Unless we see a massive ramp-up of iron ore demand, in the meantime, the short term outlook for rates looks fairly weak,” he added.
“This could still happen if demand from China, expected to remain steady this year, accelerates.”
According to a Reuters report, enquiries from Chinese buyers have increased on concern that floods in Australia might also disrupt iron ore shipments.
The report, citing industry observers, said this could be due also to sustained demand from Chinese steel mills ahead of the Lunar New Year next month, amid a tight supply situation mainly caused by the Queensland floodings.

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