Baltic sea index drops on weak freight demand
The Baltic Exchange's main sea freight index, tracking rates for ships carrying dry commodities, fell on Tuesday due to weaker freight demand in both capesize and panamax segments, Reuters reports.
The overall index, a gauge of the cost of shipping commodities such as iron ore, cement, grain, coal and fertiliser, fell 14 points or 1.23 percent to 1,127 points.
The Baltic's panamax index fell 2.52 percent, with average daily earnings down to $9,867, its lowest since April 17.
The Baltic's capesize index dropped 1.48 percent to 1,494 points.
The average daily earnings for the larger capesize vessels, which typically transport 150,000-tonne cargoes such as iron ore and coal, fell $315 to $8,526 due to weak iron ore demand in China.
Analysts expect the recent move by the Chinese government to fast track approvals for infrastructure investment is likely to boost dry bulk market activity at a time when steel producers and traders are wary of taking up cargoes.
The government had asked for project proposals by the end of June, even for those initially earmarked for the end of the year, said the China Securities Journal, one of the country's top financial papers.
"While details and numbers were scarce, the news does remind us of the situation seen in 2009 when a sharp increase in loans drove infrastructure spending higher and providing firm support to the dry bulk market," Arctic Securities analyst Erik Nikolai Stavseth said.
Stavseth continues to expect the dry bulk segment to remain challenging in the short-term, but sees it improving in the second quarter of the year.
"If the ball starts rolling faster on Chinese infrastructure projects it should spill over into dry bulk in the second quarter of 2012," he added.
Growing ship supply has been outpacing commodity demand for some time now and is expected to cap dry bulk freight rate gains in the coming months.
Meanwhile, Chinese buyers were deferring or had defaulted on coal and iron ore deliveries following a drop in prices.
"We expect the uncertain demand outlook to keep counterparty risk elevated over the near-to- ntermediate-term across the shipping sector," Wells Fargo analyst Michael Webber said in a note.
The main index, which factors in the average daily earnings of capesize, panamax, supramax and handysize dry bulk transport vessels, has fallen more than 35 percent this year.