Despite the Baltic Dry Index (a measure of shipping costs for commodities) gaining 96% in May, there is a concern among the industry players whether the growth will be sustained or not, or whether the shipping companies are actually out of the storm.
The index tracking transport costs on international trade routes rose on the back of China?s import of cheap iron-ore. However, there is an apprehension that in the coming years there will be an over-supply of vessels leading to a gap in demand and supply of cargo. Moreover, the demand of iron ore from China might not be sustained as well, hence the Chinese companies are said to be stocking up iron-ore.
?It is well expected that in 2010-11 there will be an oversupply of vessels, whereas the demand for these will be much less. Moreover the availability of cheap iron ore has prompted China to build its reserves. Hence, though the BDI is gaining on the back of that, going forward there will be a gap in demand and supply, and demand from China might as well go down,? commented a research analyst on conditions of anonymity.
The possibility of the iron ore demand from China going down is also expected, as according to analysts China is piling up on iron ore, because in the coming months the prices of iron ore is about to spike up.
?There is an uptake in steel production in China, due to which iron ore demand has gone up. China wanted to negotiate on their yearly contract with Brazil and Australia at a much lower rate, which did not happen, hence the companies there are looking at stocking iron ore now, before the prices go up,? commented an official on conditions of anonymity.
An oversupply of vessels is also expected in 2010-11, despite of the scrapping that will take place. As of May 1, the dry bulk fleet stands at 425 million dwt, and 295 million dwt is on order which will be delivered over the next 2-3 years. It?s expected that in 2010, there will be almost 23% addition in world dry bulk fleet. The supply, according to industry experts will keep increasing since during the good times the ship-owners have placed huge number of orders.
?Supply side is greater than the demand and supply will keep increasing. It could put pressure leading to a gap in demand and supply, unless the economy really revives,? commented S Hajara, CMD, Shipping Corporation of India.
According to experts, the BDI which has reached 4,106 on Wednesday might just stabilize at a lower rate. ?It?s only the spot rates that have gone up drastically, and not the time-charter rates, which shows that the industry is not very sure about the recovery,? said the official.