Friday, September 05, 2008

The Baltic Dry Index Keeps On Plunging!


The Baltic Dry Index keeps on plunging!

The Index closed at 5,874 down some 272 points or 4.4%!

Published on Forbes, Dry Bulk Hits Troubled Waters

  • Dry bulk shipping stocks have been on the rocks recently as the rising dollar and declining commodity prices create the perfect storm for investors.

    It doesn't help that worries about a global economic slowdown, especially in China and Europe, and lower steel prices in China have cut into demand for shipping in the near term.

    Even the generally optimistic shipping analysts are sitting up and taking notice. On Wednesday, Lazard Capital Markets analyst Urs Dur downgraded Eagle Bulk Shipping (nasdaq: EGLE - news - people ), Genco Shipping and Trading (nyse: GNK - news - people ) and Navios Maritime Holding (nyse: NM - news - people ) to "hold" from "buy," despite the fact that their earnings to yield outlook is unchanged and they have little exposure to BDI weakness.

    It doesn't help that Chinese iron ore inventories are increasing, while steel prices decline. Dur said that Chinese iron ore inventories at its ports increased last week to 64.8 million tons, the highest level this year, with an estimated six-to-eight-weeks supply from 40 million tons at the end of August 2007. Even though steel production in China has increased more than 11% this year and China's reliance on imported iron ore needed to produce that steel has increased 20% year on year, Dur said "declining steel prices and increasing steel inventories indicate softening near-term demand for spot Capesize ships in the near term."

    Dahlman Rose analyst Omar Nokta said that there are conflicting reports about a rumored iron ore price hike by Vale. Chinese officials have said Vale sent notification to Chinese customers of an additional 20.0% point increase to the initial 65% to 71% price increase for iron ore fines, although Vale has not confirmed the change, he said. These rumors are "clouding the outlook for the market," although he warned that if there were a price hike it "would have a near-term negative impact and explain the violent moves down over the past three days."

    While analysts have been debating over the last few weeks when the dry bulk shippers will see a turnaround, Dur says that the Baltic Dry Index, which is managed by the Baltic Exchange in London and measures dry bulk shipping rates on 40 routes across the world, will likely weaken further in the near term. Even though the BDI still remains at record levels, the supply of Capesize and Panamax ships in the Pacific basin has been increasing, he said, bringing down prices.

    The dark cloud for dry bulk is that Dur expects spot Capesize rates to drop below the $90,000 per day mark by Friday, $4,000 less than Thursday.
    He also forecasts the BDI is likely to decline another 5% to 10%. Since the dry bulk stocks tend to trade with the BDI, or at least closely, Dur says, "downward pressure on the BDI does not cultivate a buying environment."

    The good news is that Dur thinks the BDI and the global economic outlook will improve in the fourth quarter.

Published on Financial Times. Chartering slowdown affects index

  • The fall in the Baltic Dry Index from its record May high point reached 50 per cent Thursday on lower raw materials demand and more vessels available.

    The drop in the global benchmark for the cost of shipping commodities such as iron ore and grains came amid a slowdown in global economic activity and a broad sell-off of commodities.

    However, analysts and brokers said the fall in the index was also related to specific factors in the shipping industry,
    such as the seasonal slowdown in grain trading in the Atlantic in advance of the harvest.

    The index dropped Thursday 4.4 per cent to 5,874; the lowest level since late January, widening its slide from an all-time high of 11,793 to 50.2 per cent.

    Peter Norfolk, of London-based shipbrokers Simpson Spence and Young, said the market was experiencing a “real slowdown in chartering activity”.

    But Mr Norfolk and others said they expected a rebound in freight costs later this year.

    In the Forward Freight Agreements over-the-counter futures market, prices for December are above current spot quotes, suggesting charterers are expecting a rebound, although not back to the levels that were reached in May.

    James Leake, of Icap Shipping, said the recent fall in the Baltic Dry was not the end of a booming period for the sector.

    “We forecast a rebound in freight costs from November onwards on higher imports to China and a seasonal bounce back in grain activity in the Atlantic basin,” he said.

    Brokers said the current slowdown was the product of fewer iron ore imports by China, partly as result of heavy industries closures during the Olympic Games, but also in response to the lower overall steel demand by the country.

    In addition, congestion at important ports in Australia, Brazil and China had eased during the last two months.

    Mr Norfolk said 11 per cent of the world’s Capesize ships, some of the largest bulk carriers, were tied up in ports, down from 15 per cent in the summer.

And on Lyold's List, slack demand was mentioned.

  • THE Baltic Dry Index has lost more than 50% of its value in just under four months, falling to 5,874 today as limited demand fails to absorb an oversupply of tonnage.

    The BDI, which is a benchmark measure for the dry bulk market, hit an all-time-high of 11,793 on May 20, but has since fallen close to a year low of 5,615 on January 29.

    The dry bulk markets have tumbled in all sectors as a lack of fresh inquires, particularly from China, have failed to absorb an excess of tonnage.

    China, usually a major importer in the dry bulk markets, slowed its activity ahead and during the Olympic games last month. This dampened market rates, although at the time there still remained an expectation that rates would rebound post-games.

    This rally in demand has so far failed to materialise and as such owners have been unable to halt the decline in rates.

    The capesize average time charter rate today was $85,862 per day, down $8,163 from yesterday.
    The average time charter rate has now lost a massive $148,126 since it hit an all-time-high of $233,988 per day on June 6.

    One London market source even held out the prospect of rates falling as low as $65,000 per day before it finds a level and bounces back.

    Some market watchers are still holding out hopes for a fourth-quarter rebound in rates, even if expectations have now been lowered.

    Another London broker said high iron ore stocks held at Chinese ports was at the “root” of the decline in rates.

    China has more than 70m tonnes of iron ore held at major ports.

    The broker added that he did not expect rates to rebound next week as there were still quite a few ships to “hoover up”.

    Owners, particularly in the Pacific, are feeding too much tonnage into the market, the broker said.

    Forward freight agreement brokers last week said that if the physical market failed to rebound either this week or next, then dry bulk derivatives contract levels for the fourth quarter could crumble.

    The capesize fourth-quarter contract was today trading around $123,500 per day, down from $143,500 on Monday.

    In the Atlantic, panamax owners have struggled to find support in rate levels, despite showing some resistance towards the end of last week.

    The panamax average time charter rate today was $47,670 per day. Meanwhile the panamax fourth-quarter FFA contract today was trading around $57,750 per day.

    For those traders taking a punt at this level, the spot market rate would have to increase by around $10,000 per day in September to justify the position.

    The capesize spot market rate would need to rise by nearly $40,000 per day to justify the premium of the FFA contract rate.

How now brown cow?

Still blame it on the Curse of the Cow?

Here are some of the recent blog postings.

The Collapse of the Baltic Dry Index
Goldman Downgrades Bulk Shippers!
Baltic Dry Index Keeps Falling!
Baltic Dry Index Stages Strong Rebound!
Baltic Dry Index Set For Strong Recovery???
Baltic Dry Index Plunges To Seven Month Lows!