Baltic Dry Index (BDI), which tracks rates for ships carrying dry commodities like iron-ore, coal and cement, rose 20% in the past one month, on account of a surge in iron-ore demand by Chinese steel companies. But this is not likely to sustain as the surge is mainly due to restocking of iron-ore and coal ahead of the Chinese new year falling this month, say experts. Moreover, Indian shippers will continue to face pricing pressures at least till end 2013, they say.
China?s iron-ore shipment in December rose to 70.94 million tonne, up 7.8% from 65.78 million tonne in November, and 11% higher than 64.11 million tonne a year earlier, according to Bloomberg. Iron-ore accounts for 60-65% of global imports.
But now in January, according to data by CARE Ratings, Chinese iron-ore imports fell 7.6%. They declined from the peak volume of 70.94 million tonne registered in December 2012 to 65.54 million tonne in January 2013. From January-end to February 7, BDI has already dropped 10%.
Iron-ore inventory at Chinese companies hit a low in December, which led them to replenish stock by importing more. This may continue till February end. ?After the Chinese new years, we will see a fall in imports from China, but the amount of fall will depend on the pace of infrastructure projects the country has for the year,? says Sudarshan Shreenivas, associate director, corporates, India Ratings & Research.
The rise seen in BDI may not be sustainable, say experts. ?High China imports have pushed up the freight rates and it may propel it to go up further, but only temporarily. The oversupply in dry bulk is not going to ease this year, so that is a major issue even if Chinese imports rise by a high number,? said K Ravichandran of ICRA.
This comes at a time when weak demand for dry commodities from the world?s second largest economy China and an oversupply of vessels in the market is leading to low freight rates. Low rates and high costs of operations have led to many shippers in the US and Greece to go bankrupt. This year, 80 million dead weight tonne worth capacity is expected to be added to the dry bulk sector.
In September, China had announced a slew of approvals for railways investments, highway projects and other infrastructure projects worth an estimated $160 billion, which may lift up the shipping sector. But the plans are still in progress.
Indian shippers, however, are not too optimistic. Right now, the shipping industry is facing an over supply of tonnage and the situation is not likely to improve before the end of 2013.
?Pricing pressure may continue to remain on shipping freight rates for sometime,? says AR Ramakrishnan, the managing director, Essar Shipping.
Country?s largest shipping company Shipping Corporation of India?s former CMD S Hajara had told FE in December that a revival in tanker market may be seen in 2013, but not for dry bulk as there is a major chunk of deliveries are expected this year.