The cost of shipping dry freight has plummeted in the last week, with differing explanations united by a focus on iron ore and China.
Some analysts on Monday suggested that Chinese demand hit a temporary lull after a buying frenzy so far this year, while others said a major producer may have released additional shipping capacity.
The Baltic Exchange's main sea freight index closed on Friday at 9,646 points, having fallen more than 18 per cent since reaching a record high of 11,793 on May 20.
In recent years the closely-watched index has surged on the back of a commodities boom and the robust growth of emerging economies, most obviously China.
Shipping rates on specific routes have fallen even further, with the price of moving a capesize iron ore carrier from Western Australia to China dropping almost 40 per cent in the space of a week.
Brokers speculated that an Australian miner - currently negotiating with Chinese buyers for higher ore prices due to the cheaper freight compared to Brazil - may have pushed up freight costs in recent months.
'The rate has come off by over 40 per cent and the only plausible explanation for that is that someone was holding a certain amount of capacity,' said John Kemp, an analyst at Sempra Metals.
BHP Billiton declined to comment and Rio Tinto was not immediately available to comment.
Other brokers said that Chinese buyers had already obtained enough iron ore, a primary ingredient in steel, and stepped out of the market.
'The cargo demand has evaporated,' said Calum Kennedy, a dry bulk analyst at shipbroker Clarksons. 'So much iron ore has already been shipped into China in the first quarter that port stocks are so high and there is no real need for tonnage of prompt loads in July.'
Beijing last week ordered Chinese ports to clear excess iron ore stocks. Importers, anticipating the move, reduced their orders and aided the sharp correction.
The freight market has been volatile, with few participants and a tight fundamental balance.
Another factor contributing to the decline in the Baltic Dry Index was the intensification of a three-month dispute by Argentine farmers, which has disrupted grain shipments.
Growers began a fourth strike on Sunday, withheld crops and blocked roads. The protest against higher export taxes resumed after farm leaders were arrested on June 14. It may lead to food shortages and halt the flow of grains.
There is 'a lack of demand in the Atlantic', Stuart Rae, co-manager of the Global Maritime Investments Ltd hedge fund, said on Monday. 'Primarily it's due to the Argentine strikes.'
The drop in the Baltic index may be levelling off because goods such as grains and coal get cheaper on a delivered, or CIF, basis and may spur vessel demand, Mr Rae said.
'Already we have the first signs of stability in the market,' he said. Whenever shipping rates 'drop significantly, suddenly commodities on a CIF basis get cheaper and you get buying'.
Rents for typical grain carriers, called panamaxes because they can sail through the Panama Canal, fell 3.1 per cent to US$69,981 a day, Baltic Exchange data show. The vessels can carry loads of 70,000 metric tonnes. Capesizes carrying cargoes of up to 170,000 tonnes declined 3.5 per cent to US$159,200 a day.
Forward freight agreements, financial instruments used to bet on future commodity-shipping prices, also declined. Capesize contracts for July to September fell 1.5 per cent to US$147,500 a day, prices from Oslo-based broker Imarex NOS ASA showed. Panamax contracts for the period retreated 2.4 per cent to US$65,500 a day.
Some analysts on Monday suggested that Chinese demand hit a temporary lull after a buying frenzy so far this year, while others said a major producer may have released additional shipping capacity.
The Baltic Exchange's main sea freight index closed on Friday at 9,646 points, having fallen more than 18 per cent since reaching a record high of 11,793 on May 20.
In recent years the closely-watched index has surged on the back of a commodities boom and the robust growth of emerging economies, most obviously China.
Shipping rates on specific routes have fallen even further, with the price of moving a capesize iron ore carrier from Western Australia to China dropping almost 40 per cent in the space of a week.
Brokers speculated that an Australian miner - currently negotiating with Chinese buyers for higher ore prices due to the cheaper freight compared to Brazil - may have pushed up freight costs in recent months.
'The rate has come off by over 40 per cent and the only plausible explanation for that is that someone was holding a certain amount of capacity,' said John Kemp, an analyst at Sempra Metals.
BHP Billiton declined to comment and Rio Tinto was not immediately available to comment.
Other brokers said that Chinese buyers had already obtained enough iron ore, a primary ingredient in steel, and stepped out of the market.
'The cargo demand has evaporated,' said Calum Kennedy, a dry bulk analyst at shipbroker Clarksons. 'So much iron ore has already been shipped into China in the first quarter that port stocks are so high and there is no real need for tonnage of prompt loads in July.'
Beijing last week ordered Chinese ports to clear excess iron ore stocks. Importers, anticipating the move, reduced their orders and aided the sharp correction.
The freight market has been volatile, with few participants and a tight fundamental balance.
Another factor contributing to the decline in the Baltic Dry Index was the intensification of a three-month dispute by Argentine farmers, which has disrupted grain shipments.
Growers began a fourth strike on Sunday, withheld crops and blocked roads. The protest against higher export taxes resumed after farm leaders were arrested on June 14. It may lead to food shortages and halt the flow of grains.
There is 'a lack of demand in the Atlantic', Stuart Rae, co-manager of the Global Maritime Investments Ltd hedge fund, said on Monday. 'Primarily it's due to the Argentine strikes.'
The drop in the Baltic index may be levelling off because goods such as grains and coal get cheaper on a delivered, or CIF, basis and may spur vessel demand, Mr Rae said.
'Already we have the first signs of stability in the market,' he said. Whenever shipping rates 'drop significantly, suddenly commodities on a CIF basis get cheaper and you get buying'.
Rents for typical grain carriers, called panamaxes because they can sail through the Panama Canal, fell 3.1 per cent to US$69,981 a day, Baltic Exchange data show. The vessels can carry loads of 70,000 metric tonnes. Capesizes carrying cargoes of up to 170,000 tonnes declined 3.5 per cent to US$159,200 a day.
Forward freight agreements, financial instruments used to bet on future commodity-shipping prices, also declined. Capesize contracts for July to September fell 1.5 per cent to US$147,500 a day, prices from Oslo-based broker Imarex NOS ASA showed. Panamax contracts for the period retreated 2.4 per cent to US$65,500 a day.