Chinese Bulk Demand to Drive Advance in Baltic Dry Index, Cosco Forecasts

The Baltic Dry Index, the main measure of shipping costs for commodities, will extend a 46 percent rally over the past month driven by Chinese demand for iron ore and grains, China Ocean Shipping (Group) Co. said.

“The rebound may be bumpy, but in the final quarter the index should be much higher,” said Kong Fanhua, a Beijing-based senior researcher at the owner of the world’s largest operator of dry-bulk ships. Kong, who declined to give a forecast in figures, correctly called a rebound in the index last September.

The Baltic Dry’s rally has come even as signs mount that the global recovery may be sputtering, including economic growth data from Japan yesterday that missed analysts’ estimates. The index may surge to more than 4,000 points by the end of the year, a gain of at least 61 percent, according to Hanjin Shipping Co., South Korea’s largest shipping company.

China is “not collapsing but growing at a healthier pace,” said Chi Myunghwa, head of the bulk-planning team’s research division at Hanjin Shipping. “China is restocking iron ores and coal again as it braces for the winter season, while droughts and floods across the globe are aggravating a shortage of grains, resulting in greater trade.”

The gauge, a composite of daily rates for four vessel sizes, closed yesterday at 2,488 points after gaining for eight days, compared with the 15-month low of 1,700 points in July. Hanjin Shipping’s Chi said it may average 3,500 points this year compared with 2,617 points in 2009. “The outlook for bulk- shipping demand is very promising,” Chi said by phone yesterday.

‘Way to a Recovery’

China’s economic growth remains strong enough to push up imports, aided by seasonal demand for fuel and grains from Australia, South Africa and South America, China Ocean’s Kong said in an e-mailed interview. “The market is on the way to a recovery,” Kong wrote in the e-mail.

China last month reported 10.3 percent economic expansion in the second quarter, slowing from 11.9 percent in the first three months. Japan’s economy grew at annualized 0.4 percent in the April-to-June period, according to data yesterday. Keisuke Tsumura, a parliamentary secretary at Japan’s Cabinet Office, said that Japan’s economy had now fallen behind China’s.

The Conference Board’s leading economic index for China, an indicator of the outlook, rose for a second month in June, gaining 0.8 percent to 147, according to a report on the New York-based research group’s website today. The increase “signals continued moderate expansion in the second half,” said William Adams, a Beijing-based economist for the board.

‘Not Too Bad’

The global recovery is “well in place” and may accelerate as growth in developing nations counters slowing expansions in Japan and the U.S., according to Templeton Asset Management Ltd.’s Mark Mobius. “Even if we see a slowdown in China from 10 percent to 8 percent, that’s not too bad,” Mobius said in an interview on Bloomberg Television.

Capesize vessel rates have doubled this month, according to the London-based Baltic Exchange. That’s been fueled by speculation Chinese mills have accelerated imports of iron ore, which generates the greatest source of demand for dry-bulk shipping. Iron-ore imports by China, the largest buyer of the commodity, rose for the first time in four months in July.

“China’s iron ore demand will continue to increase,” Hu Kai, chief iron ore analyst at researcher UC361.com, said from Shanghai today. “Demand for imports should climb steadily.”

Grain Shipments

Australian wheat exports to China, the biggest grains consumer, have advanced to the highest level in five years since the start of November, CBH Group, Australia’s largest grain exporter, said last month. China’s corn imports may surge to 15 million tons by 2015 as the nation enters a “new era” of buying from overseas, the U.S. Grains Council said July 26, citing Shanghai JC Intelligence Co.

Recent data and central-bank statements have pointed to slower growth. The U.S. Federal Reserve said last week the recovery is weakening, while European industrial output fell in June. Reports also showed that China’s industrial output, retail sales and new lending grew in July at a slower pace than in June.

Russia’s worst drought in at least half a century prompted the government to ban exports of wheat, sending prices to their highest level in 23 months on Aug. 6 and triggering increased demand for shipments from other states. Buyers are contacting the U.S. about additional supply, U.S. Agriculture Secretary Tom Vilsack said Aug. 11.

Unprecedented flooding in Pakistan this month has affected more than 13.8 million people, while floods in China killed more than 1,450 throughout the nation as of Aug. 6. Pakistan’s Farm Minister Nazar Muhammed Gondal said yesterday that agricultural losses may total $3.3 billion.

To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net

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