Baltic Dry Index bucks trend
It strengthened by 3.4% to close at 1,090 points last Friday
The Baltic Dry Index, the benchmark of dry bulk shipping rates, continues to strengthen by 3.4% to close at 1,090 points on Friday bucking the expected downward trend.
PETALING JAYA: The Baltic Dry Index (BDI), the benchmark index of dry bulk shipping rates, continues to strengthen by 3.4% last week to close at 1,090 points on Friday bucking the expected downward trends as China, the world’s largest iron ore importer, proposed a cut on tax for iron ore mined in the country.
The BDI climbed from 1,054 points on Nov 19 to 1,090 points on Nov 23.
This is a continuous upward trend from 971 points recorded on Nov 5. The current rally of the BDI reflected a jump of nearly 65% since its lowest point year-to-date on Sept 12 at 661 points.
So far this year, the BDI peaked at 1,624 points on Jan 3, with a year-todate average of 921 points.
But this was still much lower that its highest point in the same time line last year where the index climbed to 2,173 points on Oct 14, 2011 with an average of 1,518.
To illustrate the volatility of the industry, the BDI pre-global economic crisis peaked at 11,793 points on May 20, 2008 before plunging to 666 points on Dec 3, 2008, at the height of the crisis.
According to an analyst, this rally gave a temporary uplift to the bleeding sector which loomed by overcapacity and dwindling demand largely influenced by iron ore imports by China.
“The rise could be from the restocking activities of iron ore by China, but it’s anybody guess that this is sustainable, given that China has proposed a 25% tax cut to its own miners,” he said.
CIMB Investment Bank Bhd analysts, in a recent shipping report, said the capesize market started off
Nevertheless, excess supply growth in 2013 suggests that upside will be capped. — CIMB INVESTMENT BANK BHD ANALYSTS
the fourth quarter on a very good note, with rates surging 40% weekon-week to hit above US$11,000/ day for the first time since early January.
“Nevertheless, excess supply growth in 2013 suggests that upside will be capped,” they said.
The positive BDI trend last week had also little influence on the share prices of Malaysian companies involved in the sector.
Malaysian Bulk Carriers Bhd closed the week lower at RM1.35 from RM1.39 on Monday while Hubline Bhd closed unchanged at six sen on Friday after reaching a high of 6.5 sen in the middle of last week.
Going forward towards the last month of the year, DNB Markets in its daily freight report said there were anticipations of more iron ore cargos which could give further support going into December.
According to a Bloomberg report, quoting Arctic Securities ASA, the proposed tax cut would probably give Chinese miners a price advantage over foreign suppliers,li according d to the investment bank.
“We see it as negative for dry bulk,” the newswire said.
However, Reuters reported that proposed tax cut by China for its iron ore miners could lead to lower prices of the raw material, but it would unlikely to reduce imports by the world’s top buyer as it does little to improve the competitiveness of domestic producers.
According to the newswire, China might also face strong opposition to the plan to drop the total tax rate for local iron ore miners to 10%-15% from 25% because of the potential revenue loss for local governments, quoting industry officials and analysts.
China is the world’s biggest producer of the raw material, with an annual output of more than one billion tonnes.
But the low quality of its iron ore means it relies heavily on imports.
It buys about two-thirds of globally traded iron ore, with this year’s imports of the steelmaking raw material expected to top last year’s record 686 million tonnes said Reuters.