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Baltic Dry's long-term growth questioned

Baltic Dry's long-term growth questioned

London: The Baltic Dry Index, a measure of freight rates for dry bulk vessels, gained 10 per cent in value yesterday after a 50 per cent increase last week as mining companies scrambled to hire ships to deliver iron ore to China.
The Baltic Exchange reports that importers are taking advantage of better iron prices to buy spot cargoes as inventories have depleted.
Rates for the largest capesize vessels have doubled from $17,270 per day at the end of January to more than $34,000 per day and the cost of shipping coal from South Africa to Rotterdam has leapt from $7 per tonne in January to $10 per tonne.
Opinion is divided about a recovery in trade with Morgan Stanley arguing that "the worst is over" for dry bulk shipping while Citigroup says that commodity prices are undergoing a short-term rally and it expects them to remain weak into 2010. Optimists see the renewed interest in vessel chartering as evidence that China's $600 billion infrastructure stimulus is beginning to generate demand from Chinese steel mills.
Deutsche Bank was notably cautious in a note released yesterday. The firm said, "We have seen the BDI double since its lows in December 2008 and this has sparked excitement in dry bulk shipping stocks. While we acknowledge short term momentum in the BDI (and stocks) may continue on the back of China's stimulus package, we would recommend investors Sell into strength. We remain concerned about the 10% and 15% supply growth in 2009-2010E. Order cancellations have only been 3% of existing orderbook while scrapping has only been 1% of existing vessels." ?On the supply of new vessels, the firm said even assuming cancellations and scrapping, supply growth will outstrip demand growth of 2 - 4% in 2009-2010E. [10/02/09]

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