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Tuesday, 10 February 2009
Freight rate surge may be sending wrong signals
The surge in a global benchmark freight index may say as much about the bearish conditions of some underlying commodity markets as it does about the bullishness of a global economy still feeling for a floor.
The surge in a global benchmark freight index may say as much about the bearish conditions of some underlying commodity markets as it does about the bullishness of a global economy still feeling for a floor.
Talk of growing mainland demand for Brazilian iron ore was cited as the trigger for the Baltic Exchange Dry Index’s 50 per cent surge last week, a rally that in turn fed optimism that the world’s No 3 economy may be bottoming out.
But freight traders, shippers and port officials say that this year’s bumper Australian wheat crop, the profitability of storing cheap commodities at sea and the collapse of container companies are also responsible for reviving the index from record lows – despite saying very little about economic conditions.
The index had risen to an all-time record of 11,793 points last May but since collapsed by more than 90 per cent in seven months as an economic downturn and fleet overcapacity took their toll. Its more than 50 per cent leap last week was the biggest one-week gain since at least 1985.
Australia, like Brazil a huge iron ore exporter, has drawn more notice of late from freight brokers seeking to export wheat after a strong harvest after two years of drought.
“Some people are estimating 3 million tonnes of grain exports out of the eastern [Australian] states [this year]. Last year it was 800,000 tonnes, so that is additional shipping required,” said David Ginns, a spokesman for GrainCorp, Australia’s largest grain handler.
Shipping brokers say fixtures from Australian ports for vessels carrying grain are on the up, it is hard to get a vessel before the end of April, and traders see more grain deals at higher freight rates.
Shipping grain from Australia to the Middle East now costs US$25 per tonne, up from a low of US$15 a tonne.
“A lot more vessels are coming out of Australia,” said a Singapore-based shipping broker. “The harvest there is really helping.”
Alas, a more fruitful crop in the world’s 15th largest economy is meeting firm demand as droughts in other producing nations such as mainland and Argentina are causing a shortfall elsewhere, hardly an indicator of the global economic outlook.
And traders and producers had taken advantage of low freight rates to store commodities such as iron ore at sea while waiting for better prices, in turn boosting freight rates.
“Iron ore was stored offshore Malaysia a few weeks back, but now that rates are increasing they’ve moved to China,” said the broker.
And some minor bulk goods like lumber and sugar, usually transported on container ships, are now being carried by bulk carriers after container firms slashed capacity, brokers said.
Access to credit became harder for shippers and shipyards, after several years of huge infrastructure investments spurred a race to build new ships and some container companies have had to scale back their fleets to prevent their collapse.
The gradual recovery in credit markets is another reason for the rate rebound that has little to do with economic activity.
“A large number of vessels have been taken for period employment [rather than single trips], indicating confidence and access to capital is returning to the market,” said Imarex freight broker Jeffrey Landsberg in a note.
But with freight rates at the record lows they had been at recently, it was only a matter of time until some charterers started to step in again, another ship broker said.
“January was really bad and rates were so low that it made sense to start coming in again,” the Singapore-based broker said.
“The question now is how far we’re going to rise and up to what price people want to stay in the market before backing out again. It seems to be a cautious pick-up only.”
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Freight rate surge may be sending wrong signals
Reuters in Singapore
9 February 2009
The surge in a global benchmark freight index may say as much about the bearish conditions of some underlying commodity markets as it does about the bullishness of a global economy still feeling for a floor.
Talk of growing mainland demand for Brazilian iron ore was cited as the trigger for the Baltic Exchange Dry Index’s 50 per cent surge last week, a rally that in turn fed optimism that the world’s No 3 economy may be bottoming out.
But freight traders, shippers and port officials say that this year’s bumper Australian wheat crop, the profitability of storing cheap commodities at sea and the collapse of container companies are also responsible for reviving the index from record lows – despite saying very little about economic conditions.
The index had risen to an all-time record of 11,793 points last May but since collapsed by more than 90 per cent in seven months as an economic downturn and fleet overcapacity took their toll. Its more than 50 per cent leap last week was the biggest one-week gain since at least 1985.
Australia, like Brazil a huge iron ore exporter, has drawn more notice of late from freight brokers seeking to export wheat after a strong harvest after two years of drought.
“Some people are estimating 3 million tonnes of grain exports out of the eastern [Australian] states [this year]. Last year it was 800,000 tonnes, so that is additional shipping required,” said David Ginns, a spokesman for GrainCorp, Australia’s largest grain handler.
Shipping brokers say fixtures from Australian ports for vessels carrying grain are on the up, it is hard to get a vessel before the end of April, and traders see more grain deals at higher freight rates.
Shipping grain from Australia to the Middle East now costs US$25 per tonne, up from a low of US$15 a tonne.
“A lot more vessels are coming out of Australia,” said a Singapore-based shipping broker. “The harvest there is really helping.”
Alas, a more fruitful crop in the world’s 15th largest economy is meeting firm demand as droughts in other producing nations such as mainland and Argentina are causing a shortfall elsewhere, hardly an indicator of the global economic outlook.
And traders and producers had taken advantage of low freight rates to store commodities such as iron ore at sea while waiting for better prices, in turn boosting freight rates.
“Iron ore was stored offshore Malaysia a few weeks back, but now that rates are increasing they’ve moved to China,” said the broker.
And some minor bulk goods like lumber and sugar, usually transported on container ships, are now being carried by bulk carriers after container firms slashed capacity, brokers said.
Access to credit became harder for shippers and shipyards, after several years of huge infrastructure investments spurred a race to build new ships and some container companies have had to scale back their fleets to prevent their collapse.
The gradual recovery in credit markets is another reason for the rate rebound that has little to do with economic activity.
“A large number of vessels have been taken for period employment [rather than single trips], indicating confidence and access to capital is returning to the market,” said Imarex freight broker Jeffrey Landsberg in a note.
But with freight rates at the record lows they had been at recently, it was only a matter of time until some charterers started to step in again, another ship broker said.
“January was really bad and rates were so low that it made sense to start coming in again,” the Singapore-based broker said.
“The question now is how far we’re going to rise and up to what price people want to stay in the market before backing out again. It seems to be a cautious pick-up only.”
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