Cantor Fitzgerald Comments: Baltic Index Rises, Capesize Recovery Stalls
August 16, 2010, Reuters UK
* Global economic slowdown to weigh on freight gains
* Fleet growth gathering pace
The Baltic Exchange's main sea freight index .BADI, which tracks rates to ship dry commodities, rose on Monday although slower cargo enquiry weighed on sentiment for the larger capesize vessels.
The index, which gauges the cost of shipping commodities including iron ore, cement, grain, coal and fertiliser, rose 0.81 percent, or 20 points, to 2,488 points in an eighth session of gains.
Brokers said firm Chinese iron ore activity in the middle of last week helped drive gains particularly on the capesizes but added the upward momentum slowed towards the end of the week.
"The rate jumps were surprisingly strong last week so I don't think we really expected them to be sustained," said Peter Norfolk, research director at broker FIS. "I think on the capes it might tread water maybe even ease off a bit in the next few days."
The Baltic's capesize index .BACI fell 0.5 percent with average capesize earnings falling to $29,945 a day. Capesizes typically haul 150,000-tonne cargoes such as iron ore and coal.
"(Capesize) strength apparent earlier in the week disappeared by Friday leaving a question as to whether rates will continue their upward path this week," Cantor Fitzgerald said in a report.
The Baltic's main index has been erratic this year, similar to 2009, because of swings in Chinese demand for iron ore, the primary ingredient of steel.
The Baltic's panamax index .BPNI rose 0.66 percent with average daily earnings rising to $23,166.
Brokers said grain cargo activity in the Atlantic market had help buoy panamax rates in recent days.
"The Russian wheat export ban is expected to start impacting the market shortly, and should last for one to two months," Cantor Fitzgerald said.
"With most exports going to the Mediterranean, we believe consumer countries will source wheat instead from the U.S. and Australia primarily, which should positively impact ton-mile demand."
More broadly, industry concerns about the pace of global economic recovery may hit shipping, given that about 90 percent of the world's traded goods by volume are transported by sea.
"With several indicators pointing to a slowdown in the global macro economic recovery, combined with accelerating fleet growth, the outlook does not look bright for the dry bulk freight market," Arctic Securities said.
"We expect market balance to weaken further going forward and do not believe the storm is over for dry bulk shipping."
U.S. home builder sentiment fell for a third straight month in August to its lowest level in nearly 1-1/2 years, pointing to a weak housing market as the economic recovery loses steam.
Analysts said freight rates also were expected to be dampened this year due to the pace at which new ships are set to enter the market in 2010 and 2011, despite indications of some vessel cancellations and delays.
"Deliveries during 7M2010 have been above our expectations from the beginning of the year," Arctic Securities said.
"With 287 million deadweight tonnes of vessels on order, deliveries over the next years will continue pouring into the dry bulk freight market at a pace never before seen in dry bulk history."
