Shipping rates for commodities are near a seven-month low as Chinese steel mills are said to be curbing iron ore imports.

THE global shipping industry is being hit by the drop in bulk commodity prices, with the sector's main sea freight index dramatically down this year, following a similar trend in falls recorded before the global financial crisis.

Commodity shipping rates are near a seven-month low amid speculation that Chinese steel mills are curbing iron ore imports and market-talk shipments are being deferred.

The Baltic Dry Index, the measure of prices received for shipped bulk commodities, has now fallen about 60 per cent this year and is on track to record its worst year since 2007.

The index had fallen 94 per cent during the global financial crisis and while it is normally closely watched by investors for any signs of a deeper-than-expected China slowdown, this year's falls are also on the back of an oversupply in some of the bigger vessel sizes used to move bulk freight commodities.

HSBC's chief economist Paul Bloxham said the falling index pointed to weaker global demand and a slowdown in trade.

"The European financial crisis and weak demand from the West has slowed down global trade and you are seeing that reflected in the shipping prices," he said.

"The question, of course, is what is next and whether we see a pick-up in China. Our view is Chinese growth will stabilise in the second half of this year. That should see a bit of support for trade."

Fedex, the world's largest air-cargo shipper by revenue, which is seen as an economic bellwether, has also sent a warning of tough conditions in the shipping sector.

The company warned that its profits would be hit by a sharp decline in manufacturing activity.

It is being hit by an overall slowdown in shipments and tougher competition from ocean freight as customers seek cheaper transport options.

Andrew Skinner, head of global trade and receivables finance at HSBC Australia, said shipping was subject to market forces like any other business and the combination of larger vessels with greater freight capacity, lower fuel prices, and China's economic slowdown and inventory build-up has created difficulties for Australia-China shipping, resulting in a drop in prices.

"While global headwinds have affected China more than initially expected, HSBC expects a recovery in China's economy in the coming months which will ultimately spark a stabilisation and rise in commodity prices and therefore shipping prices," he said.

Source: The Australian