Singapore: Iron ore and coal freight rates may extend gains as increasing demand for raw materials by China and India reduces vessel supply and leads to port congestion.
The Baltic Dry Index, an overall measure of commodity shipping costs on different routes and ship sizes, jumped 3.6% to 10,218 on Wednesday, surpassing the 10,000 mark for the first time, according to the Baltic Exchange.
The measure climbed to a record for a third day.
Steel makers and traders in China, the world’s largest steel user, may raise iron ore imports in anticipation of higher contract prices next year. That will bolster freight rates which have more than doubled in the past year. Demand for steam coal to generate electricity during the peak winter demand will increase shipping fees and put pressure on ports.
“Iron ore and coal markets are strong and there is also a boost to the grain market, leading to congestion particularly
in Australia, and it’s increasing to such an extent that this market is strapped for available vessels,” said Nicolai Hansteen, analyst at Lorentzen & Stemoco AS. “It will be a very strong short-term market for the next two to three months.”
About 12-13% of the existing dry-bulk fleet is tied up in congested ports worldwide, Hansteen said. At Australia’s Newcastle, the world’s biggest coal export harbour, the number of ships waiting rose to 45 on 8 October from 38 a week earlier, Newcastle Port Corp. said on its website. The coal carriers waited an average of 17.2 days to load, compared with 6.7 hours for general cargo.
“We will see seasonal swings to the market,” Hansteen said on Wednesday. “I don’t envisage the market that we are seeing today being sustainable for a very long period. We will see a very high market in 2008, continuing into 2009, but sometime in 2010, there will be the influx of new deliveries.”
More than 40% of the existing dry-bulk fleet is on order, Louisa Follis, Singapore-based general manager for consultancy and research at UK shipbroker Simpson Spence & Young Ltd, said at a shipping conference in Singapore in September.
“In the short term, the market will continue to strengthen,” Rikard Vabo, an analyst at Oslo-based Fearnley Fonds ASA, said. “Relatively few ships” will be delivered over the next 12 months, Vabo said.
Mining companies including BHP Billiton Ltd, the world’s largest, begin annual contract talks with customers this month on the price of ore shipments starting April.
Cia. Vale do Rio Doce, Rio Tinto Group and BHP Billiton, the world’s three largest iron ore exporters, may raise prices by 30% next year, according to the median forecast of eight analysts surveyed by Bloomberg. US grain exports are likely to increase as a result of lower supply from Australia, Canada and South America, pushing freight rates higher, since vessels will have to travel longer distances, DnB NOR Markets analysts Henrik With and Glenn Lodden said in a report.
Australia may harvest as little as 10 million tonnes as it grapples with the worst drought in its history, Global Commodities Ltd’s founder Greg Smith said on 4 October. Australia competes with the US and Canada as a wheat exporter. Hiring rates for a capesize vessel, which can move 175,000 tonnes of cargo, rose to a record for a second straight day, jumping 4% to $179,030 (Rs70.36 lakh) on Wednesday, based on Baltic Exchange data.
The cost of chartering apanamax, which is capable of transporting 70,000 tonnesof goods, surged 4.4% to $83,219 on Wednesday, according to data on the Baltic Exchange. That’s a seventh day of record. Bloomberg