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Baltic Dry Index Could Be Supported with Scrapping of 50 Million Deadweight Tons

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May 2, 2012

SINGAPORE (Dow Jones)–The Baltic Dry Index, the bellwether gauge of rates for ship dry commodities including grains, iron ore and coal, will likely find support for the rest of the year from Chinese demand and an expected increase in ship scrapping, a senior shipping executive said Wednesday.

The index plunged to a 26-year low of 647 points in February as new ships were put into operation. Bad weather in Brazil and Australia as well as the Chinese New Year also hurt global trade, Precious Shipping PCL (PSL.TH) Managing Director Khalid Moinuddin Hashim said.

The gauge has rebounded since then, closing at 1,152 points Tuesday on the London-based Baltic Exchange, reflecting increased confidence in demand from China, he said, tipping the metric to stay in the 800-1,200 range through the end of the year.

China’s iron ore imports in the first quarter of this year totaled 187 million metric tons, up 6% compared with a year earlier, while coal imports totaled 50.3 million tons , up 58%.

This growth has taken place against the backdrop of a slowing Chinese economy, a very low BDI average and an official forecast of an annual GDP growth of just 7.5% for 2012, well below the 9.2% growth seen in 2011, Hashim noted.

Things could be looking up datawise, Hashim added, referring to HSBC‘s monthly manufacturing Purchasing Managers’ Index, which rose to 49.3 in April compared with 48.3 in March. While the reading, issued Wednesday, is in contractionary territory, the uptick may signal a soft landing and continuing demand for raw materials in the world’s second-largest economy.

Khalid Moinuddin Hashim
Khalid Moinuddin Hashim, Managing Director, Precious Shipping

The slippage rate–the number of new ships delayed at shipyards or deferred by owners–is likely to reach 50% this year compared with 28% in 2011, supporting freight rates, Hashim said. An increase in ship tonnage slated to be scrapped, to about 50 million deadweight tons in 2012, will also help freight rates, as it will partially offset new builds, meaning that the dry bulk fleet may grow by just 3.3% this year compared with earlier expectations of 10% growth, he added.

Precious Shipping, Thailand’s leading dry-bulk shipper, owns 30 vessels and aims to double its fleet by 2014, Hashim said.

-By Surabhi Sahu, Dow Jones Newswires

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