The Baltic Dry Index, a measure of shipping costs for commodities, posted an eighth consecutive advance on Chinese demand for iron ore to make steel.
China accounts for 17 per cent of total dry-bulk imports, mostly iron ore, according to Oslo-based shipbroker Lorentzen & Stemoco A/S. Mills in the country built record stockpiles of the material this year before demand for the metal slumped and slower economic growth forced production cuts. Freight rates collapsed to the lowest in more than two decades this month.
'There are credible reports of smaller and mid-sized steel mills having run down their stocks and coming to the market,' Lorentzen & Stemoco analyst Erik Nikolai Stavseth wrote in a note on Wednesday. Grain and coal demand have also supported freight rates and the 'upward trend' will be a 'stop-go process into 2009', he said.
The index rose 8 points, or one per cent, to 836 points, according to the Baltic Exchange, extending the current rally to 26 per cent. It remains 93 per cent below the record reached on May 20. Daily rates for capesize ships that typically haul iron ore rose to their highest since Oct 17.
Rents for capesizes climbed 0.6 per cent to US$10,537 a day, the highest since Oct 17. They fell to a record low US$2,316 on Dec 2. Daily break-even costs are US$6,000, according to DnB NOR Markets ASA in Oslo.
Investors bet rents will rebound to an average of US$14,500 for the first quarter, forward freight agreement data from Oslo- based broker Imarex NOS ASA showed.
The number of capesizes idled because the collapsing freight rates have halved to 'no more than' 100 since mid-November, Erik Nikolai Stavseth, an analyst at Lorentzen & Stemoco wrote in a note on Wednesday. That has put vessel capacity utilisation at about 90 per cent, he said.
Rents of smaller panamaxes, the biggest vessels that fit the locks on the Panama Canal, gained 6.8 per cent to US$4,124 a day. FFAs showed investors expect an average of US$9,500 next quarter.