Public CompanySurge in freight rates fails to lift shipping cos' morale
A rise of about 70 per cent over 45 days in the Baltic Dry Index (BDI), the global benchmark for shipping freight rates of dry bulk carriers, has failed to cheer Indian companies, who see it as only a temporary surge.
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On Tuesday, BDI was 3,615, up 67 per cent from 2,163 on September 24. The index reached its 22-year-low of 663 in December 2008, sliding nearly 95 per cent in about seven months from an all-time high of 11,793 in May 2008. The rates had collapsed as steel producers cut output. Even the world’s largest steel maker, ArcelorMittal, breached contracts for shipping cargoes in that period.
“There are no positive indications for sustaining the freight rates at these levels,” said K S Nair, director for the bulk carrier and tanker segment at Shipping Corporation of India. “It is a temporary upsurge, as demand picked up from China to fulfill their consumed inventory of iron ore.”
Steel prices have been dropping internationally on low consumption. Earlier this month, Indian producers brought down the price for flat steel by Rs 1,500 a tonne, to Rs 32,000-34,000 a tonne in the spot market. According to analysts, these prices are expected to correct further by Rs 500 a tonne next month.
“Unless consumption in the US and Europe starts picking up and countries like China begin exporting, there would not be a real surge in demand for these ships,” said Nair, whose company has the highest 19 dry bulk carriers in the country.
“We are not sure if the index can sustain at these levels,” said A R Ramakrishnan, chief executive officer, Essar Shipping, which has got nine bulk carriers, including cape size or bulk carriers. “There are positive sentiments building in different geographies, but it is yet to be seen if it brings any fundamental boost to the global economy.”
After the hitting the 22-year-low in December 2008, the index had already recovered to 4,291 this June, as China started building inventory for iron ore. According to industry analysts, depending on the ships, companies achieve operational break-even at index levels of 3,700 to 4,000. But it again fell to 2,163 on August 24.
New vessels coming from the yards are another concern for the industry, for the low freight rate expectation. “We are expecting 10-15 per capacity addition in the global fleet in the next one year and this is further going to put pressure on the freight rates,” said Vikram Suryavanshi, a shipping analyst with Karvy Stock Broking, a local brokerage.