Nena News

Global dry freight index falls to lowest since 1986

(Montel) The Baltic Dry Index (BDI) – which tracks global dry freight rates – has dropped to its lowest level in nearly 29 years, as a surplus of vessels continues to weigh heavily on the market, participants said on Tuesday.

The BDI was last assessed at 590 points, down by 47% year on year and its lowest level since August 1986.

“In short, there are too many vessels,” said Hans Gunnar Nåvik, coal and freight analyst with Oslo-based Nena, adding “there is not enough trade in the world to absorb the capacity out there”.

All dry bulk segments have experienced sharp losses, with the key Baltic Capesize Index down by around 56% compared with the same time last year, to 665 points, and the equivalent panamax vessel rate index down by 64% to 480 points.

“It’s a total collapse across the board, with limited trade of smaller commodities, due to a [raw materials] export ban in Indonesia, lower trade in thermal coal, due to the mild winter, and most likely muted iron ore trade, due to strong inventories in China and sluggish steel-making growth,” Nåvik said.

At the same time, plunging bunker fuel prices – which have dropped in line with global crude oil prices – have exacerbated the situation.

Speed increases
“Bunker fuel prices have collapsed, and the lower the prices, the higher the speed vessels can operated,” Nåvik said, noting “speed increases result in stronger vessel supply”.

Front month Brent crude last traded at USD 56.40/bbl, nearly half of its value from a year ago, although the contract has risen around a quarter from its lows in mid-January.

“Seaborne activity in iron ore slowed substantially [in January], especially from Brazil, where the number of sailings was reduced by more than 50% from December,” shipbrokers RS Platou said in a note to clients, adding the weak euro was also playing a role.

“Chinese steel exports decreased, especially to Europe…[as] a weaker euro made overseas steel less competitive in the European market,” they said.

The euro was last pegged at 1.1328 against the dollar, only marginally stronger than around 11-year lows seen on 22 January, of 1.1168.

“The dry bulk market has seemingly gone dead silent, with worries circulating amongst many owners that there is little reason to operate vessels under the currently prevailing freight rates,” said Allied Shipbroking, in a note.

“Things are sounding quite pessimistic, yet it seems to be that the prevailing belief is that this is a short term trend and not representative of what we will be seeing during the whole of the year,” it added. 

Reporting by:
Laurence Walker
laurence@montel.no
11:03, Tuesday, 3 February 2015

Editing by:
Jeff Coelho
jeff@montel.no
11:03, Tuesday, 3 February 2015