Baltic Dry Index Sails to Biggest Gain in 4 Years

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September 9, 2013

By Isaac Arnsdorf

Sept. 9 (Bloomberg) — The cost of shipping raw materials surged the most in more than four years as strengthening steel prices in China spur imports of iron ore used to make the metal, helping owners recover from the industry’s worst slump ever.

The Baltic Dry Index, a benchmark of commodity shipping rates, jumped 9.3 percent to 1,478 today, the biggest gain since June 2009, according to the Baltic Exchange, the London-based publisher of freight rates on more than 50 trade routes. The measure is now at the highest since January 2012, after collapsing from as high as 11,793 in 2008 because of a record shipbuilding program.

China’s imports of iron ore, the single-biggest source of demand for the vessels, expanded 8.1 percent to 526.7 million metric tons in the year to August compared with the same period a year earlier, customs data show. The increase is the result of strengthening steel output and prices in China, according to Fotis Giannakoulis, a New York-based analyst at Morgan Stanley.

“Steel production in China is defying a seasonal slowdown in prices, allowing mills to absorb high iron ore imports,” he said in an e-mailed report today.

“As long as high steel prices offer attractive margins for steel mills, there is room for strong imports.”

Daily earnings for iron-ore carrying Capesizes, the largest ships tracked by the index, rose 17 percent to $25,426, the highest since December 2011, according to the exchange. Twenty- six of the vessels were booked last week, up from 16 the week before, according to Morgan Stanley. Spot bookings in the last three months rose 27 percent from a year earlier while the fleet expanded 5.5 percent, Giannakoulis said.

Steel Output

Steel reinforcement-bar futures in Shanghai rose 0.8 percent to close at 3,752 yuan ($613) a ton today, the highest since Sept. 2. Daily steel output rose 1 percent to 2.12 million tons in late August from the previous period, according to Xiben New Line, citing data from the China Iron & Steel Association.

The price of imported iron ore climbed 22 percent since the start of June to $134.80 a ton, according to the Steel Index Ltd. China imported 69.01 million tons in August, up 11 percent from a year earlier and within 6 percent of July’s all-time high, customs data show. Stockpiles are 24 percent lower than a year ago, according to Beijing Antaike Information Development Co.

The Capesize fleet swelled 70 percent to 289 million deadweight tons since 2009, according to Clarkson Plc, the world’s largest shipbroker. Capacity will expand 5.6 percent this year, the slowest pace since 2003, figures show.

Gains extended across the smallest ship types tracked by the index. Panamax rates rose 8.3 percent to $8,836 a day, according to the exchange. Supramaxes and Handysizes both rose less than 1 percent to $10,091 and $7,731, respectively.

Copyright 2013 Bloomberg.

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