Dec. 4 (Bloomberg) -- Commodity-shipping costs will rise to a record in 2008 before falling as the number of vessels outpaces demand, Baltic Exchange Ltd. Chairman Michael Drayton said.

Freight rates for dry-bulk commodities including grain, iron ore and coal have gained this year on demand from India and China, the world's biggest steelmaker and copper user. Shipyards in Japan, China and South Korea responded with the biggest construction program in history, after receiving enough orders to increase capacity by about 50 percent.

``You can't defy gravity forever,'' Drayton said in an interview at a conference in Mumbai Nov. 30. ``We know that sometime in 2008, even at the present demand, we are going to see a crossing of the two graphs,'' where supply surpasses demand.

The Baltic Dry Index, the benchmark for commodity shipping rates, more than doubled this year to a record 11,039 on Nov. 13, and rose 600 percent since the start of 2003. China needs iron ore, copper and other commodities to fuel an economy that is growing at more than four times the pace of the U.S. and Europe.

``The worrying thing is that China itself now has pressure to say, `We've gone far enough'',' Drayton said. ``I just hope that when China turns the taps off, it turns it slowly.''

The Baltic Exchange, based in London, provides benchmark prices for the cost of shipping oil and bulk commodities including coal, grain and iron ore.

Iron-Ore Imports

China's imports of iron ore averaged 32.04 million metric tons a month in the third quarter, according to the China General Administration of Customs. That's 12 percent more than the year- earlier quarter and 42 percent higher than the equivalent period in 2005.

The boom led to record profits this year for operators including Athens-based DryShips Inc. and Diana Shipping Inc., and Hamilton, Bermuda-based Golden Ocean Group Ltd., led by Norwegian billionaire John Fredriksen.

The carrying capacity of the global fleet of commodity ships has climbed by 6.2 percent to 354 million deadweight tons since November of last year, according to data compiled by Lloyd's Register-Fairplay. Deadweight tons are a measure of a ship's capacity for carrying cargo, fuel and supplies.

The Baltic Dry Index advanced 15 points, or 0.2 percent, to 10,285 points today. Hire rates increased for every class of commodity carrier except capesize vessels, the biggest within the benchmark.

The exchange's daily assessments settle so-called Forward Freight Agreements, or FFAs, which are used to bet on, or hedge, the future cost of shipping.

FFAs for capesizes in the first quarter of 2008 declined 2.5 percent. Bids for the contracts fell to about $153,000 a day with offers at $157,000, according to Andy Lucey, co-founder of Freight Investor Services in London. That compares with a closing price yesterday of $159,000 a day.

Panamax FFAs for the same period traded at about $74,500 a day, down 2 percent from yesterday's close of $76,000, according to Freight Investor Services.

To contact the reporters on this story: Gautam Chakravorthy in Mumbai at chakravorthy@bloomberg.net; Alaric Nightingale in London at Anightingal1@bloomberg.net

Last Updated: December 4, 2007 11:11 EST