Commodity Shipping Has Worst Streak in Five Years on Surplus

By Alistair Holloway and Alaric Nightingale

June 30 (Bloomberg) -- Commodity shipping costs measured by the Baltic Dry Index extended their longest losing streak in almost five years as an expanding fleet overwhelmed weakening demand for grain, coal and ore carriers.

Imports of coal and iron ore by China, the world’s biggest user of the commodities, fell for two consecutive months, customs data show. Grain shipments from South America slowed, leaving shipping lines with “the full force of vessel supply,” Martin Sommerseth Jaer and Erik Nikolai Stavseth, Oslo-based analysts with Arctic Securities ASA, said in a report.

The index fell 41 points, or 1.7 percent, to 2,406 points, the lowest since October 2009, according to the Baltic Exchange in London. That’s the 24th consecutive drop, the longest losing streak since August 2005. Daily rates for capesize ships, typically iron ore transporters that are three times the size of the Statue of Liberty, slumped 59 percent since reaching a 2010 high on June 2.

“The capes are the weakest element of the BDI and the capes are iron ore-” driven, Andreas Vergottis, research director at Tufton Oceanic Ltd., which manages the world’s largest shipping hedge fund, said by phone from London today. “Profitability of Chinese steel mills is zero now, we think.”

Chinese steelmakers are the biggest consumers of iron ore, more of which is transported at sea than any other dry-bulk commodity. Dry-bulk demand is also leveling off because of China’s moves to cool its property market, Vergottis said.

Measures taken by the Chinese government to restrain the Asian nation’s surging property sector have included raising mortgage rates and downpayment ratios, barring lending for third-home purchases and ordering tighter scrutiny of developers’ financing.

Fleet to Grow

Daily rates for capesizes were little changed today at $24,239. Rents for smaller panamaxes, the largest vessels able to navigate the Panama Canal, dropped 4.4 percent to $22,113 a day. They compete with capesizes for coal and iron ore cargoes and also carry grains.

The total number of ships waiting to transit the canal fell to 30 from 38 the previous week, according to a June 26 report from Truro, England-based Global Ports, which tracks congestion.

The fleet of dry-bulk carriers will grow 16 percent to 17 percent this year, Vergottis said. Ships that may have been ordered in 2008, when the Baltic Dry Index rose to a record before recording a 92 percent collapse for the year, may now be surplus to requirements without the demand to absorb them.

“At the moment you haven’t got that demand growth,” Vergottis said. “There are too many ships just when growth in demand seems to be decelerating.”

Shares of Nippon Yusen K.K. fell 0.6 percent in Tokyo trading today, dropping for a fourth day. Mitsui O.S.K. Lines Ltd. declined 1.5 percent and shares in China Cosco Holdings Co. retreated by the same amount in Hong Kong. The 12-member Bloomberg Dry Ships Index retreated 27 percent since reaching a 15-month closing high on Jan. 11.

--Editors: Stuart Wallace, Claudia Carpenter