Dry bulk rates seen coming close to all-time lows

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

2 Sep 2010

Freight rates for dry bulk carriers could tumble near historic lows next year as new ships flood the market and iron ore demand in China weakens, said the head of Precious Shipping However, Precious Shipping - which manages 21 dry bulk carriers and charges its customer on a daily basis - is unlikely to be significantly impacted by the weakening freight market as it has already booked a quarter of its vessels through 2013, said Khalid Hashim, the managing director of the Thai-listed firm.
The Baltic index, which gauges the cost of shipping dry commodities, including iron ore, cement, grain, coal and fertiliser, has fallen around 10 per cent so far this year.
It traded at 2,713 points on Tuesday, up 0.04 per cent or one point.
Mr Hashim told Reuters his outlook for the index was 'very negative', forecasting the benchmark index could slide to levels not seen for nearly a quarter of a century.
'If you look at the index in historical terms, the lowest it hit was 554 points in the mid-80s, then it came down to 663 in December 2008, it could come to somewhere close to this type of number,' Mr Hashim said on the sidelines of an industry conference.
Mr Hashim said that one of the biggest concerns for the industry was weakening demand from China, the world's second largest economy.
The Chinese government has imposed measures to slow down its red-hot property market, which threatens to slash demand for steel-making ingredients such as iron ore.
'China is trying to slow down the real estate market because it is creating a bubble. That is going to have an impact on the dry bulk market,' the 57-year-old executive said.
The company is trying to boost the number of its vessels to 65 by 2013 or 2014, after disposing of around 33 ships in recent years as part of its fleet renewal programme.
It has contracted around half of its fleet for 2011 at nearly US$15,000 per vessel, up from an average of US$12,035 in 2010.
But Mr Hashim said that the average rate for 2011 may slip due to the weak market.
Last month, Precious Shipping reported a 79 per cent fall in its second-quarter net profit, mostly due to smaller number of vessels in operation.
Mr Hashim said the company has US$180 million cash on its balance sheet and another US$450 million credit line, which could be used to buy new ships.
It has ordered 21 new ships to be delivered by 2013 and was looking to buy another 23 vessels from the second hand market.
Shares in Precious Shipping, which has a market value of US$600 million, has dropped around 4 per cent this year, underperforming the 24 per cent rise in the broader Thai market.

Source: Reuters