Baltic Dry Index May Surge More Than 80 Percent!

On Bloomberg News: Baltic Dry to Jump on Chinese Bulk Demand, Cosco

• The Baltic Dry Index, the main measure of shipping costs for commodities, may surge more than 80 percent by the end of the year on increased demand for shipments to China, according to China Ocean Shipping (Group) Co.
  
  The gauge may rebound to 4,000 points as local governments encourage factory output, especially of steel, Kong Fanhua, a senior researcher at the company, said in an interview. “If you believe in a China story, believe in a recovery in the shipping market,” Kong said today. The index ended yesterday at 2,192.
  
  Iron ore is the biggest dry-bulk cargo moved by sea, and China is the top consumer of the steelmaking material. The Baltic Dry Index, regarded by some investors as a proxy for shifts in global commodity demand, peaked this year at 4,291 in June as China’s stimulus package revived demand.
  
  Talks on contract iron prices for next year between suppliers and Chinese mills may drive vessel bookings, Kong said in Singapore, where he’s attending an industry conference. The fourth quarter is also the “traditional high season” for coal consumption, which should boost the shipping trade, he said.
  
  “China’s government can’t stop the current policy of expansion,” said Kong. State-held China Ocean Shipping owns the world’s largest operator of dry-bulk ships. “It’s just like driving a car on a mountain: if you stop in the middle of the mountain, you’ll slide down backward.”
  
  ‘Critical Phase’
  
  Premier Wen Jiabao said on Sept. 10 that China “cannot and will not change” policies, signaling that he will maintain the unprecedented government spending. The country is in a “critical phase” of ensuring economic growth, China National Radio reported Sept. 18, citing the Fourth Plenary Session of the 17th Communist Party of China Central Committee.
  
  China will expand 8.2 percent this year, compared with a March forecast of 7 percent, the Asian Development Bank said last week, helping to ease concern that the nation may slow raw- material imports. A recent slowdown in imports was related to seasonality, Kong said.
  Kong’s forecast suggests that the Baltic Dry Index may surge 82 percent in the final three months of 2009. The measure -- a composite of the daily rates for four vessel sizes, Capesize, Panamax, Handysize and Supramax -- plunged 92 percent last year as the global recession hammered commodity demand and the credit crunch curbed bank financing for trade.
  
  Kong echoed the view by Glenn Maguire, chief Asia-Pacific economist with Societe Generale SA, who said earlier this month that China’s inland projects to build more roads, railways and warehouses will continue to fuel demand for commodities.

In another article: Shipping rates see reverse trend for crude, bulk carriers

• "It is only the winter effect that has helped the tanker rates move up,” said K S Nair, director (bulk carrier and tanker segment) at the Shipping Corporation of India, the country’s largest shipping company, which has a fleet of over 80 ships. “Freight rates are not expected to have surprises in the next one year,” he said.
  
  The company’s stock has dropped 2.5 per cent to 138 a share on the Bombay Stock Exchange in the past three weeks. Sensex, the benchmark index of the exchange, gained 4.2 per cent to 16.693 in that period.
  
  Bulk carriers can handle their operational cost at the 4,000-4,500 index level and running at the current freight rate is tough. According to Nair, it is the high inventory of iron ore in China that has affected the freight rate for the bulk carriers.
  
  “For tankers, depending on the routes, some players are able to recover the operational cost even at these levels,” said Yudhishthir Khatau, managing director, Varun Shipping. “But it is too early to say whether it is cyclical effect of approaching winter or it is headed for a long-term recovery,” he said. Stock of the company gained 1.6 per cent to Rs 60.15 a share on the Bombay Stock Exchange in three weeks.
  
  Consumption of oil in western countries increases in winter on account of the heating requirements and usually this period sees an uptake in demand for tankers. However, Jehangir Adi Master, a shipping industry analyst with ICICI Securities, says: “Freight rates are set for gradual recovery.”
  
  He estimates the Baltic Dry Index to rise by 20 per cent by the end of the current year as economies have been recovering globally and demand picking up. “Tanker rates may also rise by 20 to 25 per cent by the end of the year,” he said.