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Handysize Rates to Buck Dry-Bulk Slump on China, Japan, STX Pan Ocean Says

Rents for handysize vessels, which transport mostly logs and other commodities such as grains and sugar, may advance as imports of wood by China and Japan are likely to increase, according to STX Pan Ocean Co.

“Handysize rates may climb by at least 10 percent from current levels once Japan’s rebuilding work gets under way” after the March 11 record quake, Lee Sang Jae, head of the Oceania team at South Korea’s biggest bulk carrier, said yesterday. He didn’t give a precise price forecast.

The Baltic Dry Index, the main measure of commodity shipping costs, has tumbled 56 percent in the past year as the global fleet expands. Rates for capesize, the largest type of vessel tracked by the gauge, plunged 65 percent this year, while handysizes declined about 3 percent.

“China’s log imports increased a lot last year and are still growing explosively as the economy expands,” Lee said in an interview. “Also, Japan may need more logs to rebuild houses after the earthquake.”

Log imports by China, the world’s biggest buyer, surged to $705 million in March, the highest level since Bloomberg began tracking data in 2004. China, the largest customer for dry-bulk lines, followed by Japan, is increasing imports from the U.S., Canada and New Zealand as Russian supplies decline, Lee said.

‘Multiyear Upturn’

“A multiyear upturn in demand and prices is likely for logs, lumber and other wood products” as China is reducing its dependence on Russia, the country’s biggest supplier, and turning to Canada and the U.S. Pacific Northwest, according to a Barclays Capital report on Jan. 4.

Log and lumber shipments from New Zealand to Japan may increase as the country starts to rebuild towns wrecked by last month’s earthquake and tsunami, Murray Sturgeon, managing director at Nelson Pine Industries Ltd., said in March. Log exports from New Zealand increased after the 1995 earthquake in Kobe, NZX Agrifax said in a March report.

“Handysizes have virtually decoupled from the Baltic Dry Index, which is deemed inadequate to fully represent all the vessel types,” said Lee. “I expect handysizes to advance.”

The pace of growth in the global handysize fleet is lagging behind that of bigger vessels, Lee said at the company’s headquarters in Seoul. Demolition of old vessels is increasing because of improving scrap prices, he said.

Daily rates for capesize, most commonly used to transport iron ore, dropped 2.2 percent to $7,030 yesterday, while handysizes gained 0.4 percent to $11,837. The Baltic Dry Index lost 1 percent.

Owners are contending with a fleet that’s expanding at a faster pace than trade. The global fleet of commodity transporters will increase by 13 percent this year, more than double the 6 percent expansion in seaborne trade, according to the research unit of Clarkson Plc (CKN), the biggest shipbroker.

The industry faces risks from high oil prices, which threaten to squeeze margins, and radiation concerns in Japan, which have left some ship owners reluctant to enter Japanese ports near the crippled Fukushima power plant, Lee said.

To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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