Iron ore and coal freight rates may extend gains from a record on increased demand for panamax, the second-largest type of ships that move dry goods in bulk. The Baltic Dry Index, a measure of commodity-shipping costs on different routes and ship sizes, broke the 11,000 mark for the first time on Oct. 26, according to the London-based Baltic Exchange. It gained 2.1 percent last week to close at 11,025. Hiring rates for a panamax, which can move 70,000 metric tons of cargo, were at a record $93,301 on Oct. 26.
"The market is unbelievable as there's a lot of demand for steel which is in direct proportion to the need for iron ore," Alex Harkess, director for dry-cargo chartering at Clarkson Asia Pte in Singapore, said by phone. "There's huge demand for coal used to smelt iron ore to produce steel. China needs to import huge volumes of steam coal to reduce dependence on oil-fired power stations." Record purchases of commodities by China, the world's fastest-growing major economy, have led to port congestion and caused freight rates to more than double in the past year. Steelmakers and traders in China, which produces a third of the world's steel, are increasing iron ore imports in anticipation of price gains next year. The country became a net coal importer for the first time in January, prompting other nations to seek coal supplies elsewhere.
China overtook Japan as the largest buyer of iron ore in 2003 after steelmakers boosted production. Iron ore, which is the single-biggest commodity shipped by sea, is the main material to make steel.
At Australia's Newcastle, the world's largest export-harbor for coal, the number of ships waiting to load the fuel rose to 39 this morning from 37 on Oct. 22, Newcastle Port Corp. said on its Web Site. The coal carriers waited an average of 16.7 days to load, longer than last week's 15.55 days.
The port's coal shipments fell to 1.66 million tons for the week ended Oct. 29 from 1.96 million tons a week earlier, Newcastle Port said.
"In the short term the Baltic Dry Index should rise or maintain its level until March or April next year," said Ryu Je Hyun, a Hong Kong-based analyst at Mirae Asset Securities. "The Chinese inventory of iron ore is very low and the market thinks it's time for the Chinese to increase their inventories." Chinese importers will likely source iron ore from Australia and Brazil, increasing the distance traveled by ships and tying them up for longer periods, Ryu said. Steel demand in China will increase 11.4 percent in 2007 and 11.5 percent in 2008, accounting for 35 percent of the world's total, according to the International Iron and Steel Institute on Oct. 8. Global steel demand will rise 6.8 percent in 2008, according to the institute. China's economy, the biggest contributor to global growth, expanded more than 11 percent for a third quarter, the government said last week.
"I'm very bullish," Clarkson's Harkess said. "There will be volatility but it will be good for the market." Hiring rates for a capesize, which can move 175,000 tons of cargo, fell for a third day, losing $1,099, or 0.6 percent, to $181,730 on Oct. 26, according to the Baltic Exchange. Capesize rates have more than doubled this year.
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