4 Min Read
* Global turmoil adding to risks
* Ship glut hurting any chance for major recovery
By Jonathan Saul
LONDON, Jan 16 (Reuters) - The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, fell to its lowest in nearly three years on Monday as the market continued to struggle with surplus vessels and sluggish cargo demand.
The shipping sector in coming months is expected to face a supply glut and economic gloom, including concerns over the outlook for Chinese demand for raw materials, which will pressure earnings.
"With S&P's (credit rating agency Standard & Poor's) recently downgrade of several European states including France, it seems as though there is still a great deal of uncertainty in the global markets, with many expecting a very slow growth in global trade," Greek broker Intermodal said.
The overall index fell 40 points or 3.8 percent to 1,013 points and was at its lowest since the end of January 2009, falling nearly 40 percent since the start of the year.
"With regards to demand, things are still looking fairly shaky as the recent disturbances caused by weather phenomena in South America and Australia have caused severe disturbances and are weakening an already poor charter market," Intermodal said.
"Expectations are for a steady growth rate in demand, though definitely at lower levels than what is scheduled for fleet growth. This will inevitably lead to much worse conditions in the freight market than what was seen a year prior."
Iron ore shipments account for around a third of seaborne volumes on the larger capesizes, and brokers said price developments remained a key factor for dry freight. Weather disruptions have hit cargo activity in recent days.
"We believe the decline in shipping rates is a function of slowing demand from Chinese steel production and lower shipments from Australia and Brazil due to heavy rains," Deutsche Bank said.
"We find that freight rates are moving back to the low levels reached during last year's Chinese New Year holiday. As a result, we believe we are approaching a floor in freight rates, particularly if weather conditions start to improve."
Capesizes, which typically transport 150,000 tonne cargoes such as iron ore and coal, had driven a rally late last year, helped by firmer coal and iron ore exports from Australia after earlier weather disruptions there and in Brazil as well as a pick-up in Japanese coal imports. A build-up of port congestion also provided support.
The Baltic's capesize index fell 2.44 percent on Monday, with average daily earnings sliding to $8,498 a day and at their lowest since May 20 last year.
"The market continues to be overburdened by new-building deliveries," Pareto Securities said.
The overall index, which gauges the cost of shipping commodities including iron ore, coal and grain, has remained erratic and is down over 25 percent from the same period last year.
The Baltic's panamax index fell 4.59 percent. Average daily earnings for panamaxes, which usually transport 60,000-70,000 tonne cargoes of coal or grains, reached $9,611.