Baltic dry index slips 16% to hit three-month low

Written by Nikita Upadhyay | Nikita Upadhyay | Updated: Aug 4 2011, 06:39am hrs
The Baltic Dry Index (BDI) has slipped by 16% to a three-month low, indicating that the worst is still not over for the shipping industry. BDI touched a low of 1,253 units on August 2 vis-a-vis 1,489 units on June 2.

A lot has to do with the sentiment in the market and we dont see it improving in the short term. Iron ore imports from China have softened and that has impacted cargo movement. On the S7 route which is for Supramax between India and China, rates have slumped to $9300 per day as against $14-15000 a day earlier (which is also less), said Sunil Thapar, director, Bulk Carrier & Tanker Division, Shipping Corporation of India (SCI).

A slump in BDI directly correlates to a decline in time charter rates of shipping companies.

Indian shipping companies like Shipping Corporation of India, Mercator Lines and GE Shipping might see a decline in their charter rates for dry bulk, which will be closer to their operating cost, thus impacting their margins. While shares of Great Eastern Shipping and Mercator Lines closed at R263 and R35.35, down 1.56% and 0.56% respectively on Wednesday; SCI shares closed at R100.8, up 0.10%. BDI is a composite of three sub-indices that measure different sizes of merchant ships, capesize, supramax and panamax carrying a range of commodities.

The dry bulk market includes iron ore, coal, grains, steel, cement, forest products, agricultural products, non-ferrous minerals and metals, collectively amounting to more than 2.6 billion tonnes of cargo annually.

Iron ore, coal and grain are the largest contributors, accounting for more than half of the trade between them. Of these, capesize has a higher weightage in BDI.

The time charter rate for capesize vessel or Very Large Ore Carrier (VLOC) has declined to $10,000 a day as compared to $1,60,000 per day in peak times.

Another reason for a fall in BDI is the demand supply gap in the market. This year alone about 90 million dead weight tonnage will be added to the global shipping industry. This growth in fleet is about 12% more than the last year. However, the demand is growing only by 5%.

To top it up, a huge order book, almost 40% of the total global dry bulk fleet is expected to be added in the coming two to three years. Sentiments suggests, BDI can decline further, said Rahul Sharan, senior research analyst, Drewry Shipping Consultants, India.