Baltic Dry Index, the global benchmark for freight rates of dry bulk carriers, touched 1,148 on Tuesday, a 73 per cent gain from its 22-year low of 663 two months back, as iron ore demand from China improved and credit lines to traders became available. Over the last month, the index has gained about 63 per cent from 773 at the beginning of the year.
“The demand for cape-size vessels was hit hardest ...now it is showing improvement,” said KS Nair, director, bulk carrier and tanker segment, at the government-controlled Shipping Corporation of India (SCI). Nair, however, added: “Even at this index level, it is not possible to recover the running cost, the break-even can be achieved only at the 4,000-4,500 level.” Cape-size vessels are large ships deployed on long routes.
On Wednesday, the freight rate for the cape-size vessels, the average of the four main routes, was $21,810 per day, compared with the level of about $2,000 per day in December. According to an analyst, the break-even rate for cape-size vessels at the operating level is about $6,500 to $7,000 a day. However, after factoring in the interest cost and depreciation, the rate is about $30,000 per day.
The Baltic Dry Index, which touched an all-time high of 11,793 on May 20, 2008, started sliding following the global economic slowdown. It touched its 22-year low in December as steel producers cut down production. Even the world’s largest steel maker, ArcelorMittal, breached contracts for shipping cargoes during that period.
The stocks of Indian shipping companies have been losing their value on the Bombay Stock Exchange (BSE) ever since the freight rates collapsed. In last one month alone, the stock of Mumbai-based Mercator Lines declined by 35 per cent, highest amongst its peers, to Rs 25.3 a share. The stock of SCI, India’s largest shipping company, dropped nearly 11 per cent to Rs 83 a share, while the value of Mumbai-based GE Shipping lost 27 per cent to touch Rs 177.4 per share in the same period.
| SHIPPING FIRMS AT BSE | ||||
| Name | Group | Jan 5, '09 | Feb 4, '09 | % change |
| Mercator Lines | S | 39.15 | 25.30 | -35.38 |
| G E Shipping | A | 243.45 | 177.45 | -27.11 |
| Essar Shipping | A | 38.45 | 29.25 | -23.93 |
| Shreyas Shipping | B2 | 27.15 | 22.30 | -17.86 |
| Garware Offshore | S | 80.00 | 68.34 | -14.58 |
| Chowgule Steam | B2 | 26.90 | 23.40 | -13.01 |
| Great Offshore | B2 | 278.89 | 242.90 | -12.9 |
| SKS Logistic | S | 14.79 | 12.91 | -12.71 |
| Shipping Corp | A | 92.55 | 82.80 | -10.53 |
| Scindia Steam Navigation | Z | 8.77 | 8.35 | -4.79 |
| Varun Shipping | B2 | 47.95 | 46.10 | -3.86 |
| SEAMEC | B2 | 41.35 | 39.85 | -3.63 |
SCI has 19 dry bulk carriers and all its long-term contracts, except those with SAIL, are now awaiting renewal.
“Letters of credit of some important banks are now being accepted. Besides, the demand from China and Brazil has improved,” said Nitin Kolhatkar, vice-president (finance and accounts), Mercator Lines.
The global liquidity crunch had made it difficult for the traders to obtain letters of credit from the banks, which eventually brought the international trade to a near standstill.
“Baltic can get only better now,” said a spokesperson of the Mumbai-based Great Eastern Shipping. “Gain in the index is only relative to its 22-year low. It has to go up further,” she said.
