Dry bulk rates to drop further as China closes mills
The gradual downward trend of dry bulk freight rates is expected to continue as China, the world’s biggest iron ore importer, will cut import of the commodity with the completion of the Olympics projects. Also, steel mills in Beijing have been asked to halt operations for 60 days starting yesterday to reduce pollution during the games next month. OSK Research in a recent report said: “While Beijing has a small percentage of the nation’s steel mills, factories in the neighbouring provinces of Hebei, Shanxi and Shandong make up some 30% of China’s total steel production.
“Even partial closure of these factories to reduce pollution could have a serious impact on iron ore demand and therefore the demand for dry bulk shipping.”
In mid-June, Chinese ports were ordered to clear excess iron ore stocks that had clogged operations, due to concerns that the excess cargo might flood the domestic market and hurt freight rates.
The Baltic Dry Index (BDI), after reaching a peak of 11,793 points on May 20, had slumped by 23.2% to 9,059 points on July 17. It was 6,462 points on Jan 18.
The BDI, managed by the Baltic Exchange in London, reflects the dry bulk shipping rates. It is an assessment of the price of moving the major raw materials by sea.
The index covers Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities, including coal, iron ore and grain.
Last year, the BDI climbed gradually by 161.6% from 4,219 points on Feb 1 to 11,039 points on Nov 13.
From early last year to mid-July this year, the BDI seemed to have gone through a cycle.
If it is cyclical, following the gradual decrease since May, the BDI should be picking up in the fourth quarter.
OSK Research Sdn Bhd associate director Chris Eng expected the BDI to trend down gradually before rising again in October.
“Then again, it has remained very resilient at 9,000 points while we had earlier expected a fall to 7,000 points.
“The resolution of iron ore price negotiations could also mean that more iron ore is bought (by China) from Australia compared with Brazil leading to lower tonne-mile demand (therefore cheaper rates).
“In any case, the BDI usually takes a break in May or June and surges again in September. We feel that the BDI will stabilise but will not slump. Even if the BDI falls to 6,000 points, that is still a very profitable level for dry bulk ship owners.”
He said Malaysian Bulk Carriers Bhd (Maybulk), a premier dry bulk vessel owner, should see increased profits if rates stabilised.
“But, given its strong net cash position, a drop in rates will likely lead to a drop in ship prices, which means the ideal time to expand for Maybulk,” he said.
A relatively new player in the market, Hubline Bhd is currently enjoying good returns from its dry bulk segment.
For the six months ended March 31, the group’s net profit hit RM35.1mil, an increase of RM20.4mil from the previous corresponding period.
“Even partial closure of these factories to reduce pollution could have a serious impact on iron ore demand and therefore the demand for dry bulk shipping.”
In mid-June, Chinese ports were ordered to clear excess iron ore stocks that had clogged operations, due to concerns that the excess cargo might flood the domestic market and hurt freight rates.
The Baltic Dry Index (BDI), after reaching a peak of 11,793 points on May 20, had slumped by 23.2% to 9,059 points on July 17. It was 6,462 points on Jan 18.
The BDI, managed by the Baltic Exchange in London, reflects the dry bulk shipping rates. It is an assessment of the price of moving the major raw materials by sea.
The index covers Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities, including coal, iron ore and grain.
Last year, the BDI climbed gradually by 161.6% from 4,219 points on Feb 1 to 11,039 points on Nov 13.
From early last year to mid-July this year, the BDI seemed to have gone through a cycle.
If it is cyclical, following the gradual decrease since May, the BDI should be picking up in the fourth quarter.
OSK Research Sdn Bhd associate director Chris Eng expected the BDI to trend down gradually before rising again in October.
“Then again, it has remained very resilient at 9,000 points while we had earlier expected a fall to 7,000 points.
“The resolution of iron ore price negotiations could also mean that more iron ore is bought (by China) from Australia compared with Brazil leading to lower tonne-mile demand (therefore cheaper rates).
“In any case, the BDI usually takes a break in May or June and surges again in September. We feel that the BDI will stabilise but will not slump. Even if the BDI falls to 6,000 points, that is still a very profitable level for dry bulk ship owners.”
He said Malaysian Bulk Carriers Bhd (Maybulk), a premier dry bulk vessel owner, should see increased profits if rates stabilised.
“But, given its strong net cash position, a drop in rates will likely lead to a drop in ship prices, which means the ideal time to expand for Maybulk,” he said.
A relatively new player in the market, Hubline Bhd is currently enjoying good returns from its dry bulk segment.
For the six months ended March 31, the group’s net profit hit RM35.1mil, an increase of RM20.4mil from the previous corresponding period.