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The
Baltic Exchange's chief sea freight index, which
tracks prices to ship major dry commodities,
inched up on Wednesday but analysts said a
sustainable rally depended on a recovery in
global steel prices.
The London-based index,
which gauges prices to ship resources like iron
ore, coal, grain, cement and fertiliser on major
export routes, rose 10 points, or 1 percent, to
a three-month high of 1,014. Prices to ship raw
materials, excluding oil, have been clawing back
after collapsing to a 22-year low of 663 points
in early December on the financial crisis and
economic downturn.
"Steel market fundamentals are still pretty
poor, prices have fallen a long way and
production statistics are well down, though over
the last few weeks we have seen this little
rebound in Capesize rates," said Peter Norfolk,
director of dry trade at Simpson, Spence & Young
ship consultancy in London.
"Trade credit is still a problem: banks are not
lending money and that's still very much an
issue that has hit trade," Norfolk said.
Capesize-class merchant ships are the largest
class of vessel that ferry iron ore and coal,
which were key drivers of the index to a record
high last May, mainly on Chinese demand.
The Capesize sector, a major component of the
chief index, actually fell on Wednesday, which
some brokers linked to the Lunar New Year
holidays in Asia.
Playing down the overall price rise Norfolk
said: "It seems to be a touch of steel mills and
traders taking advantage of lower freight and
lower iron ore prices.
"For a real push you are going to need more
substantial strength in steel markets and we
don't really see that at the moment."
Freight costs for dry commodities are still 91
percent off a record hit last year.
Apart from sluggish global demand, brokers and
analysts say seaborne freight will come under
pressure from ballooning ship supply after
frenzied ordering of new vessels in the boom
years.
"We are set for massive deliveries this year,"
Norfolk said, outlining that 870 merchant ships
or 68 million deadweight tonnes will be added
across the dry-bulk fleet in 2009.
"Ship scrapping has really accelerated in the
last few weeks and that's one real difference
from two or three months ago," Norfolk said
speaking about retirement of older vessels.
"But at the moment the new ships are going to
far outweigh deletions. Everyone is talking
about cancellations of orders, because of the
crisis, which will be a significant factor but
that is more of a medium-term thing," he said.
Norfolk said the outlook remained bleak with the
recovery only beginning in earnest possibly by
mid-year.
"There is some expectation among steel analysts
that there will be a rebound in China's steel
demand later this year following the stimulus
package, we are talking about the second half of
this year onwards."
Source: Reuters |
