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Dry bulk market warned to belt up for a bumpy ride

Dry bulk market warned to belt up for a bumpy ride

Shanghai: Asian shipping shares surged back during Monday's trading following the dramatic dive in stock prices at the end of last week. Both dry bulk shipping companies and container lines had been badly hit as investors baled out following a slump in the Baltic Dry Bulk Index. Market sources are warning of significant volatility in the weeks ahead. China's National Development and Reform Commission has announced plans to cut the country's record stockpiles of iron ore and brokers point out this will result in less chartering activity on the world's largest dry bulk trade ?" iron ore from Brazil to China.

Monday's new-found optimism, however, came as analysts pointed out that any reduction in Chinese demand for bulk shipping would be only temporary. As soon as iron-ore stocks have been reduced, just a many Capesize vessels, if not more, will be required. And it was this class of vessel that led the way down: last week more than $100,000 a day was wiped off potential Capesize earnings which, admittedly, have been extraordinarily high of late.

The market volatility comes against a backdrop of caution from brokers and market analysts. Rates on key routes, including Brazil to China, have reached levels in which the delivered cost of raw materials may not be economically viable. In other words, some say, shipping may be pricing itself out of the market. Oslo-based analysts at Nena Nordiske Energianalyse, for example, believe that there is a point at which high shipping rates result in delivered prices that make no sense. This could well be part of the reason why the Chinese have declared their intention to draw down on existing stockpiles or iron ore.  [17/06/08]

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