Friday, October 22, 2010

Baltic index falls, focus on China economy

The Baltic Exchange's main sea freight index .BADI, which tracks rates to ship dry commodities, fell for a fifth session on Thursday with sluggish activity taking its toll.

Brokers said there was still support for larger capesizes. The index, which gauges the cost of shipping commodities including iron ore, cement, grain, coal and fertiliser, fell 0.33 percent, or 9 points, to 2,720 points.

"The factors which drove the market up in the last couple of weeks are still in place," said Georgi Slavov, head of dry research and structured products at ICAP Shipping.

"I suspect (iron ore) activity will remain pretty strong for at least a couple of weeks ... there is a bit more way to go on the capes."

China's growth ebbed in the third quarter while inflation edged higher, suggesting that the world's second-largest economy was far from overheating and that an interest rate rise this week may be enough for now.

"The rate increase (in China) will not necessarily influence the investment activity in the country and therefore the purchasing of iron ore," Slavov said.

The Baltic's main index has been erratic this year, as it was in 2009, because of swings in Chinese demand for iron ore, the primary ingredient of steel. It reached a 2010 peak of over 4,200 points in May.

"We would keep an eye on any signs of more (policy) tightening, but for the time being, the rest of the year, China will likely continue to spur global equity and commodity markets with solid demand," Arctic Securities said.

Activity in the capesize market has also been volatile in recent months. A rally in August was driven by Chinese iron ore imports from Australia and Brazil on capesizes after Karnataka, India's second-largest ore producing state, banned exports from 10 of its ports in July.

Brokers said they were watching the development of Typhoon Megi which looked set to make a landfall on Saturday east of Hong Kong. Key oil and container ports in southern China closed on Thursday ahead of the typhoon.

"The typhoon is likely to result in delays in shipments and an increase in coastal congestion," Commodore Research said.

The Baltic's capesize index .BACI fell 0.16 percent, with average capesize earnings down $119 to $45,490. Capesizes typically haul 150,000-tonne cargoes such as iron ore and coal.

The Baltic's panamax index .BPNI rose 0.32 percent on Thursday, with average daily earnings rising to $17,545, while the supramax index .BASI fell 0.61 percent.

"Lack of demand and too many ballasters took the panamax market further down despite the strong cape market. Charterers were in the driving seat," broker Fearnleys said.

Analysts said freight rates would be dampened in the coming months by the pace at which new ships are set to enter the market between 2010 and 2012, despite indications of some vessel cancellations and delays.

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