Tuesday, September 30, 2008

Baltic Dry Index Continues To Plunge

And the Baltic Dry Index plunged another 6% or 242 points.

Do see yesterday's posting
Baltic Dry Index Keeps On Plunging!!

On purchasing.com
Dry bulk ocean freight rates tank on credit concerns

  • Credit crunch partly to blame for massive nosedive in freight rate index
    By Dave Hannon -- Purchasing, 9/29/2008 1:28:00 PM

    “The demand for goods is there; there is just not enough liquidity to move those goods around.”

    The words of Stamatis Molaris, CEO of Excel Maritime in a Reuters interview on Friday have an eerie ring to them—eerie in the sense that we may be hearing a lot more of them from executives up and down the supply chain. Speaking on a day when the Baltic Dry Index plunged to a two-year low,
    Molaris said tight credit conditions would slow orders for materials that require massive ships as well as the ability to build those ships.

    “If the credit crunch lasts beyond the short term, then shipyards—especially the newer ones—are going to fall like a house of cards,”
    he told Reuters, adding that even Excel with its strong balance sheet may find it hard to raise funds for new acquisitions in the current environment.
    "Get me funding and I'll look at a ship. I cannot stress this enough: The banks are not lending any money."

    The Baltic Dry Index, which measures drybulk shipping rates on 40 routes across the world, fell 417 points Friday to close at 3,746 and by the end of the day Monday it was down to 3,504.

    Similarly, Norden CEO Carsten Mortensen also blamed the credit crunch for the freight rate plunge. He told Lloyd’s List that “A
    very dramatic two months in the banking sector have pushed down rates and sentiment much more than most market participants had expected. Does that change our fundamental belief in the demand for dry cargo bulk transportation going forward? Not really.”

    Even the Wall Street Journal referred to the Baltic Dry Index plunge as “ripple effects of the crisis in the real economy."

    But other sources say it’s not just the credit markets at play and there are real changes afoot in demand trends for ocean shipping. Jeffrey Landsberg, a freight options broker at Imarex, told Forbes that reports out of China that it will boycott iron ore from Brazil and use domestic iron ore put dry bulk shipping firms and rates into a panic. Forbes points out that Vale said the news was untrue, but the damage was done to the index notwithstanding.

    But Landsberg also agreed that tight credit markets would hinder shipbuilding, citing three separate South Korean shipyards that announced they would likely have to cancel 40 big ships because they aren’t able to raise enough capital to finance construction.

On the Financial Times. Jumping ship

  • Jumping ship
    Published: September 29 2008 03:00 Last updated: September 29 2008 03:00

    Yet more reason to panic? The Baltic Dry index, which measures dry bulk shipping costs, plunged by nearly a quarter last week - 10 per cent on Friday alone - as rates plummeted for the biggest ocean carriers of raw materials. Shipping groups' shares, notably in Asia, have followed suit. Given the index's reputation as a leading indicator, that looks scary. In fact, the index's predictive value has weakened as it has become far more volatile than the commodities markets underlying it, gyrating around on factors such as shipping supply bottlenecks. It has twice doubled and fallen back within 15 months; its latest slide leaves it 70 per cent below its May peak.

    The Baltic Dry once correlated closely with global commodity indices. It started yoyoing in 2002 as China became a vast suction pump for materials such as iron ore and coking coal, straining the global supply chain. And China is driving today's plunge. The expected post-Olympic rebound - as polluting plants shuttered during the Beijing games reopened - has not occurred, with steel producers jittery over demand. They have also suspended buying iron ore from Brazil's Vale in protest over cheeky demands by the world's largest producer for a mid-contract price increase. With China's ore stockpiles overflowing, ships are sailing empty from Brazil. Another pressure on the index may be sell-offs of forward freight agreements, or options contracts on freight rates, as finance houses dump derivatives.

    But while its movements may be exaggerated, the Baltic Dry's drop does reflect a weakening of Chinese raw material demand. Meanwhile, Drewry, the London-based shipping consultants, forecasts growth in container ship imports from Asia to Europe will fall from 15 per cent in recent years to 4-5 per cent this year while container imports from Asia to the US will decline 2 per cent. Just as money is no longer rocketing round the financial system, so goods flowing round the world's seaways are slowing too.

However, there are some who remains optimistic. Analyst sees shipping demand rebounding this year

  • NEW YORK - One analyst suggests that the spreading credit crisis and the lifting of some temporary factors will allow drybulk shipping demand to rebound by the end of this year.

    Shipping activity slowed significantly, as anticipated, around the Olympics in Beijing.
    But demand did not rebound this month as was widely expected, Jefferies analyst Douglas Mavrinac said, because of a Chinese boycott of Brazilian iron ore.

    Last week, an association representing the largest Chinese iron ore suppliers formalized a boycott against a major Brazilian supplier, as that company announced plans to hike prices to Asian customers by about 11 percent.

    Mavrinac said he expects iron ore deliveries from Brazil to China will remain "limited" in the near future, but will need to increase as China runs of its own supplies of the commodity, used to make steel.

    Until then, drybulk stocks and the heavily watched Baltic Dry Index will likely fall further, he said.

    But possibly by as early as November, Mavrinac said the boycott should be lifted and drybulk trade - which also includes shipments of grain, coal and cement - should pick up.

    The analyst even predicts that the Baltic Dry Index, which measures drybulk shipping rates on 40 routes across the world, might return to record levels it set in May.

    The index, managed by the Baltic Exchange in London, closed down 242 points Monday at 3,504. It has declined since hitting an all-time high on May 20 of 11,793.

    And Mavrinac said that shipping demand and the potential jump in drybulk stocks will likely grow even stronger as the credit crisis spreads. The analyst notes that shaky financial markets are making it difficult for shipowners to finance the building of new ships, so the 2010-influx that was expected will likely be limited, keeping demand high.

    Most drybulk stocks sank by double-digit percentages and set fresh year-lows Monday, as the U.S. House of Representatives failed to pass the $700 emergency bailout package designed to ease quickly spreading financial woes.

Other postings:

1. Views On Current Weakness On Baltic Dry Index

2. The Collapse of the Baltic Dry Index

3. Goldman Downgrades Bulk Shippers!

4. Baltic Dry Index Keeps Falling!

5. Baltic Dry Index Stages Strong Rebound!

6. Baltic Dry Index Set For Strong Recovery???

7. Baltic Dry Index Plunges To Seven Month Lows!

8. The Baltic Dry Index Keeps On Plunging!