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The volatility of the Baltic Dry Index (BDI) has been well documented this year, but a 400 point surge over the past month has pushed the index back to the levels it enjoyed just before the boom in shipping started three years ago.
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February to April saw the largest ever amount of iron imported by China, including more than 50 million tonnes in April alone. That has largely fuelled the rise in the BDI, with shippers reporting brisk activity on the Australia to China route. Chinese buying activity and evidence of large-scale restocking, is fuelled by a spot ore price that is at its lowest in four years: the latest CIF (cost, insurance and freight) price for iron ore is $80 per tonne, down 40 per cent compared with last year. According to Brazilian iron-ore producer Vale, contracts with medium-sized steel mills, presumably state-owned, were the driving force behind the pick-up in sales in the quarter.
The latest data from N. Cotzias Shipping shows that the spot rates for the key Capesize index were now running between $14,000 and $42,000 per day for the largest vessels, a significant improvement on the below-running-cost prices seen just before Christmas. This has also led to increased activity in the sale & purchase market, although at far lower levels. Cotzias cites the case of the M/V SWS Resale, which was recently bought by Greek ship owners for $63m, a 58 per cent discount to its sale price only a year ago. Cotzias's findings are bourne out by the UK's major shipbrokers, Clarksons and Braemar, which this week both reported renewed interest in ship buying.
• See also:
Unprecedented slump in world trade
Trade slump hits Asia, resources
The rise in the index pushes ship-owners back into profitability and coincides with an easing of recent problems in obtaining trade credit. However, the key questions are whether China's buying activity represents a return to longer-term growth, or just an opportunistic play on cheap ore prices, and whether Asian export trade will recover. The answers will determine whether the rise in the BDI can be sustained in the second half. We think it's too early to call, and so shares in Globus Maritime, the main shipping player in the UK with enough charter-free ships to benefit from an increase in spot rates, are high enough at 74p.
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-IC-2.1.3g-prod - 17/03/2010 18:13:09 - ben.wheeler
