Baltic index drops, cargo demand momentum falters

The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, turned negative on Friday as cargo demand on the larger capesize vessels

slowed after active bookings earlier this week.
The overall index fell 0.28 percent or 4 points to 1,449 points after having risen for three sessions previously. The index has stayed erratic in recent weeks and has declined close to 20 percent this year.
"Capesize rates are likely to come under pressure next week, as spot Chinese iron ore demand is in the midst of a significant lull. Prospects are more encouraging for panamax rates as Chinese and Asian thermal coal demand remains very strong," said Jeffrey Landsberg, managing director of dry bulk consultancy Commodore Research
"Electricity demand in China and across Asia in poised due to surge during the upcoming weeks as temperatures have grown warmer in much of the region.
The outlook for dry bulk rates has been grim because ship supply has outpaced demand to ship commodities.
The situation has been compounded by the deployment of a vessel owned by top iron ore producer Vale of Brazil, the first of the world's largest dry bulkers to enter the fleet.
India's monsoon was also reducing iron ore exports as rivers rise, hampering goods transportation.
"Dry bulk freight rates are expected to remain subdued in July on the back of the Indian monsoon season, which will most likely reduce iron ore exports from India. Also, China could be importing lower volumes of iron ore due to current high level of inventories," said brokerage ICICIdirect.
"On the positive side, from a medium-term perspective, China's thermal coal fixtures are likely to remain firm while lifting of the Russian wheat export ban and the recovery of Australian coal mines could lend support to dry bulk freight rates."
The Baltic's capesize index fell 0.52 percent with average daily earnings falling to $13,941, having risen earlier this week to their highest since January. Capesizes typically haul 150,000 tonne cargoes such as iron ore and coal.
The Baltic's panamax index rose 1.26 percent. Average daily earnings for panamaxes, which usually transport 60,000-70,000 tonne cargoes of coal or grains, reached $13,458.
"Despite the rates seemingly finding some sort of floor in the East, the outlook remained very fragile with a long list of ships still available and more to come," the Baltic Exchange said in its weekly report on Friday.
Brokers said they were watching for further developments in China, which is facing its worst power shortages in years and likely to have an impact on dry freight activity. Uncertainty over prospects for the world economy could also potentially hurt demand for raw materials.
China must balance the need to control inflation and keep its vast economy growing although any policy steps would need time to take effect, its central bank governor chief said on Friday.
The main Baltic index has more than halved in the past six months, nearing levels last seen during the financial crisis in 2008.
Source: Reuters