Baltic Index Will Stay Under 2,000 Until 2014, Macquarie Says

The Baltic Dry Index, a measure of commodity freight costs, will take until 2014 to exceed an average level of 2,000 as iron-ore production runs below estimates, said Macquarie Capital Securities Ltd.

Top global producer Vale SA’s output of the steelmaking raw material will be 26 percent lower next year than projected by the company in 2007, Macquarie said in a report e-mailed yesterday. That equates to a shortfall of 110 million metric tons, it said. At the same time, the fleet is set to expand more quickly than demand to ship commodities, the report showed.

Iron ore is typically carried on capesizes, the largest vessels tracked by the index. The dry-bulk fleet’s growth next year will outpace an estimated 8 percent gain in demand to transport commodities by sea, even as scrapping of older vessels surges 48 percent, Macquarie analysts led by Hong Kong-based Janet Lewis said in the report.

“We believe 2012 will be the low point for rates, but that the recovery back to a BDI average of around 2,000 will take until 2014,” the bank said.

The index fell 0.5 percent to 1,856 today, the first drop in six sessions, according to the Baltic Exchange, a London- based provider of shipping rates on international maritime routes. It has averaged about 1,529 this year, data compiled by Bloomberg shows, headed for the lowest annual figure since 2002. The gauge’s yearly average peaked at 7,070 in 2007.

Panamax Rents

Macquarie predicted the most pressure on earnings over the next two years for capesizes and panamaxes, the two largest dry- bulk vessel classes. They have the greatest surplus of capacity, the analysts said.

The largest and smallest capesize subclasses, so-called very large ore carriers and mini-capes, had the biggest oversupply, Macquarie said, citing a presentation from Ian Sheriff, a representative of Zodiac Maritime Agencies Ltd. The London-based ship operator has a fleet of 34 capesizes and 13 very large ore carriers.

Dry-bulk ships with a combined capacity of 37 million deadweight tons will be demolished next year, up from 25 million tons in 2011, the report showed. Vessel deliveries will drop to 70 million tons from 96 million tons this year, Macquarie forecast.

The average daily single-voyage rent for a capesize fell for the first session in seven, declining 0.4 percent to $29,250, according to the exchange. That’s almost double this year’s average of $14,722 and 8.6 percent below the 2011 high of $31,998 reached Oct. 25, data show.

Panamax hire costs slid 0.5 percent to $13,523, the lowest level since Sept. 28, and supramaxes that are about 25 percent smaller fell 0.9 percent to $13,827. Handysize vessels, the smallest tracked by the index, declined for an 11th session, sliding 0.4 percent to $8,824.

To contact the reporter on this story: Michelle Wiese Bockmann in London at mwiesebockma@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net

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