Baltic Dry Index posts fifth consecutive rise - Capesizes keep on falling
Wednesday, 19 November 2008
The dry bulk market is facing all kinds of paradoxes these days, directly derived from the collapse of the Baltic Dry Index until recently. Now, the BDI is showing signs of a very slow recovery, with yesterday (Tuesday) marking the fifth consecutive upward session. It rose by 9 points to close at 865 points, but the once benchmark index, the Capesize index keeps on falling. It now stands at 994 points (-8 points), while (and here’s the paradox) the Panamax Index is higher at 1,012 points showing steady signs of recovery, although the market is far from reaching a point where one can say that a recovery is on track. Reasonably so, BRS (Barry Rogliano Salles) in its latest report about the dry bulk market said that “with demand so unpredictable, shipowners can do little but focus on supply at present. Demolitions have shot up since the collapse of the market, and so far this year more than 2.3m deadweight of dry bulk tonnage has been sent to the scrapyard. This is triple the total in 2007”.
Eitzen Group and especially Eitzen Bulk, commenting on the market outlook during the company’s third quarter results provided some useful insights. It said that “the challenging financial market and the lack of short term credit (LC) have put limitations on acquisitions and trading of commodities. These factors will continue to impact the freight rates for the bulk segment”.
And there are pretty good reasons for that to happen. For instance, Japan’s announcement about its economy heading into recession, combined with more negative data about Chinese steel production, a critical factor for sustaining a rebound of iron ore shipments. BRS says that “latest figures show Chinese iron ore imports dropped 22% in October compared to a rise in September, while steel production fell 9%. The China Metallurgical Mining Enterprise Association warns imports could stagnate in 2009, reversing nine years of growth. There was a sliver of good news for the coal markets however after Australia’s premier research body forecast it could escape the worst of the world recession. Abare predicts world thermal coal trade will actually increase 4% in 2008, and by 3% in 2009, due to higher demand in Asia” BRS said.
So, what’s going on with the capesize segment of the market. Well, the four time charter average closed last week at a mere US$3,793/day, a $1,000 drop from Friday-to-Friday. The 4tc has now lost more than 98% of its value since the summer peak, according to BRS. Therefore, ship owners will have to weather the storm in various ways. Eitzen said that a “general market concern is that players who had taken a bullish market position, with limited hedging in place will rapidly face cash flow problems and may be forced into liquidation”.
Nikos Roussanoglou, Hellenic Shipping News
