The Negative Impact Of Recent Surge In Baltic Dry Index

Firstly.. the Baltic Dry Index has closed significantly lower AGAIN.

That's 3 huge down days - just in case you are counting yet.

Ahem.. and incredibly there's not much 'news' out there talking about the sharp reversal!!!

Anyway on Lyolds List local shipper Precious Shipping is featured.

Precious warns of negative effects of dry bulk rates surge

• Marcus Hand, Kuala Lumpur - Monday 8 June 2009
  
  THE recent sharp rise in dry bulk shipping freight rates could result in long-term damage to the market, warns Precious Shipping managing director Khalid Hashim.
  
  A binge in iron ore buying by China has seen imports rise 27% in the first four months of the year, compared to the previous year, despite Chinese steel production remaining fairly constant year on year.
  
  Mr Hashim said the compression of imports of a single commodity, largely in capesize ships, in a short space of time had created two issues at the same time.
  
  “You tend to push up freight rates due to the time-compressed, explosive demand growth for that ship sector. More significantly, you create queues at loading and discharging ports which tend to reduce availability of spot ships thereby driving prices even higher,” he said.
  
  These factors then combined with delays in deliveries of newbuildings to drive average time charter rates for capesizes to $93,197 daily and the Baltic Dry Index to 4,291 points on June 3.
  
  Mr Hashim said this was an unwelcome distortion of overall market conditions, which could have negative long-term consequences for the market.
  
  “Firstly, scrapping will come to a grinding halt. This will stop the squeeze on the supply side which was originating from the permanent removal of ships via the scrapyards,” he said.
  
  “Secondly, with the new confidence in the market, all the delayed deliveries of new ships from the builders might make a startling reversal and lots of new ships could suddenly start appearing on the market.”
  
  The net result of this was to push out further the rebalancing of supply and demand in the dry bulk sector.
  
  Precious Shipping forecasts port congestion could push the BDI to over 5,000 points before it clears, after which the index would crash again.
  
  “The fundamentals still overwhelmingly point to a world economic recession with tremendous job losses and we suspect that will put a real dampener on the current burning hot BDI,” Mr Hashim said.
  
  Precious Shipping has now sold-off 14 out of 25 vessels passing the 25-year-old mark over a 12-24 period.
  
  “We continue with our plan to sell these 25 ships, but some of them have long-term contracts attached to them making it impossible to sell them immediately whilst their contracts are still running,” Mr Hashim said.
  
  The shipowner had said previously it planned to start making acquisitions in the secondhand market in the second half of the year should prices come down to a level it considers reasonable.
  
  “If the BDI starts to fall and stays at a low enough level for the next few months it would provide the ideal opportunity for us to go ahead and complete our fleet renewal plans,” he said.

How now my dearest Brown Cow? You really reckon the Baltic Dry Index's strong performance could last?