Sunday, December 14, 2008

Baltic Dry Index shows signs of revival

THE Baltic Dry Index (BDI) has shown early signs of revival as it has gained 40 points or almost 6% from Dec 8 to Dec 11 on the back of surging iron ore transportation demand.

The BDI stood at 711 points on Dec 11.

BDI, the barometer of shipping cost for commodities, fell from 11,793 points on May 20 to only 663 points on Dec 5, a 94.4% decrease.

This was contributed by the sharp dive in demand to ship iron ore for steel production this year due to the global economic downturn that stunted the growth of cars and construction projects.

(The BDI averages 26 shipping routes measured on a time charter and voyage basis where the index covers Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities, including coal, iron ore and grain.)

The small BDI point increase since then indicates that short-term demand of iron ore for next year may be picking up.

According to Bloomberg, customs data showed that China, the biggest steelmaker, imported 32.5 million tonnes of iron ore last month, up from 30.6 million tonnes in October.

The news agency also stated that the markets were moving now on the iron-ore front, quoting Philippe van den Abeele, London-based managing director of Castalia Fund Management (UK) Ltd.

“There’s demand beyond Christmas, and requirements for January are coming into the market so it seems more sustainable than the end of the year. It’s a good development but the jury is still out when it comes to longer-term prospects,” said van den Abeele.

The longer-term prospects are still uncertain.

Apart from this, India has also cut export duty on iron ore to 0% on fines and 5% on lumps, which is expected to spur demand for iron ore export as well as boost the slumping commodity shipping rates.

Previously export duty on iron ore fines was 8% while that on lumps stood at 15%.

The move by the Indian government may encourage demand from Chinese steelmakers like the Baosteel Group Corp and Baoshan Iron & Steel Co, two of the country’s largest steelmakers, and also create demand for Capesize ships.

According to Bloomberg, Baoshan Iron & Steel will also increase sales to Honda Motor Co’s Chinese unit by 43% next year.

The Baltic Capesize Index climbed by 204 points from Dec 8 to Dec 11 to 1,142 points, a 21.8% increase.

Capesize ships are cargo ships traditionally too large to transit the Suez Canal.

Capesize vessels used to have to pass either the Cape of Good Hope but they now can transit the Suez Canal as long as they meet the draft restriction of 18.91m.

On the other hand, the Baltic Panamax Index continued to slide to 422 points on Dec 11 from 481 points on Dec 8.

Source: Star Online

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