Baltic Dry Index touched 4,381 on Tuesday, a 14-month high.
Shipping companies are back to making profit after a gap of almost a year, as the freight rates for dry bulk carriers surge on import of iron ore and foodgrain by China. The Baltic Dry Index, the benchmark index for such ships, touched 4,381 on Tuesday, a 14-month high.
“These 14 months were the worst for the shipping industry,” said S Hajara, chairman and managing director at Shipping Corporation of India, India’s largest shipping company.
“Recession has bottomed out and there has been an uptake in import of foodgrain and iron ore by China, helping freight rates to surge,” he said. The demand for such ships has also increased at Australian and Brazilian ports.
| BACK IN GREEN | |||
| Share price in Rs | Dec 1,’08 | Nov 18,’09 | %chg |
| Essar Shipping | 27.05 | 70.45 | 160.44 |
| Mercator Lines | 26.4 | 61.9 | 134.47 |
| Shipping Corp | 71.09 | 150.3 | 111.42 |
| GE Shipping | 161.15 | 283.64 | 76.01 |
| Varun Shipping | 43.1 | 58.35 | 35.38 |
The company has 19 dry bulk carriers, the highest in the country. The stock has gained 111 per cent, to Rs 150 a share on the Bombay Stock Exchange since December 1. The Sensex, the benchmark index of the exchange, gained 92 per cent in that period.
The Baltic Dry index reached a 22-year-low of 663 in December 2008, sliding nearly 95 per cent in about seven months from an all-time high of 11,793 in May 2008. The rates had collapsed as steel producers cut output, with recession hitting global consumption.
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The index recovered to 4,291 this June, as China started building inventory for iron ore. But, again fell to 2,163 on August 24, on low consumption. This is the second surge in the freight rate, as consumption of steel rises in China. The World Steel Economics Committee said last month that China’s demand for steel would rebound 19 per cent in 2009 and 5 per cent in 2010. The steel output of the country has been at record levels for three consecutive months at the back of the government’s four trillion yuan ($586 billion) stimulus package.
“Dry bulk ships are making very good profit at this level,” said a spokesperson of Great Eastern Shipping, India’s second-largest shipping company. Capesize vessels, the largest dry bulk carriers, with over 150,000 tonnes deadweight tonne (dwt) capacity, are currently having a $60,000 per day rate for Atlantic delivery and $54,000 per day for Pacific delivery.
The break-even for such ships is a maximim of $30,000 per day, including their interest cost and depreciation. So, at the current freight rate these ships are making a profit of $30,000 on short-term contracts. The stock of the company has gained 76 per cent to Rs 283.6 a share on the BSE since December 1.
But sustenance of freight rates at this level has been a concern, due to the huge order book at shipyards due for delivery next year. If all these newly-built ships are delivered, the industry is expected to add 10-15 per cent to its existing vessel capacity.
“We are getting a sense that a lot of delivery for next year would not materialise,” said the spokesperson of GE Shipping. If that happens, the industry may see this level of freight rates being sustained in the coming months.
However, the tanker segment of the industry has still not recovered from the downfall in their freight rates. The Baltic Dirty Tanker Index, the benchmark for freight rates of crude tankers, was 645 on Tuesday, marginally up from the low of 453 it touched in April this year. In 2008, the index had touched a high of 2,347.