July 18 (Bloomberg) -- The cost of shipping commodities such as coal and iron ore fell for a third consecutive week, reaching their lowest in almost two years, as the world fleet of dry-bulk carriers expands.

The Baltic Dry Index, which measures freight rates for different-size dry-bulk vessels on global trade routes, has slumped by almost two thirds from December records. Ships with a total capacity of 11 million deadweight metric tons were delivered from shipyards this year, London-based shipbroker Galbraith's said in a July 15 report.

``It should come as no surprise then that freight rates have weakened as this swathe of extra carrying capacity has become available,'' the broker said. ``It is difficult to see how things will improve as the tonnage lists still outweigh the enquiry.''

The Baltic Dry Index dropped 58, or 2.5 percent, to 2307, the lowest since Sept. 4 2003, according to the Baltic Exchange in London.

Thirty Capesize vessels, the largest dry-bulk carriers, were delivered from shipyards this year, adding 8 million deadweight tons, a measure of a ship's capacity for carrying cargo, fuel and supplies, Galbraith's said.

Capesizes can carry as many as 175,000 metric tons of cargo and are used to ship iron ore, used to make steel, and coal. Rates on the benchmark route from Brazil, the world's second-biggest ore exporter, to China shed 4 cents, or 0.2 percent, $23.39 a ton, according to the Baltic Exchange.

Costs from Australia, the world's biggest ore exporter, to China were unchanged at $8.83 a ton.

Demand Struggles

Iron ore imports to China, the world's largest steel producer, may rise 23 percent this year to 255 million metric tons, the Oslo shipbroker Lorentzen & Stemoco said in a report.

``On the demand side, China has continued to forge ahead but almost every other country has struggled to add any further tonnage requirement,'' Galbraith's said. ``And at the same time the other major importer, South Korea, has seen a downturn in both its coal and iron ore imports.''

Freight rates for Capesizes shipping coal from the Richards Bay coal terminal in South Africa, the world's second-biggest coal- export port, to Europe fell 0.5 percent, or 6 cents, to $11.30 a ton, according to the Baltic Exchange.

South Africa is the world's fourth-largest exporter of coal used in power plants, after Australia, Indonesia and China.

Shipping derivatives, known as Forward Freight Agreements, on the so-called C4 route from Richards Bay, closed at $11.70 a ton for July contracts, according to International Maritime Exchange AS, or Imarex, in Oslo. August contracts closed at $12.30 a ton.

Derivatives are financial obligations whose value is derived from indexes or interest rates or underlying assets such as debt, equity, commodities or currencies.

To contact the reporter on this story: Saijel Kishan in London at at skishan@bloomberg.net

Last Updated: July 18, 2005 10:47 EDT