The Baltic Dry Index (BDI) hits a 27-year low of US$522 attributed to a slowdown in China’s manufacturing, easing commodity imports despite lower prices, shorter shipping routes preferred and robust new building activities of dry bulk fleet.
MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) highlighted in its sector update that dry bulk shipping industry outlook remains bleak arising from unfavourable industry dynamics.
The BDI recently hit a 27-year low of US$522 with all four carrier sizes seeing a decrease in rates, it said. This also superseded the previous low of US$554 in July 1986 and is 53 per cent below the average price of US$1,105 in FY14.
“The decline, in our view, has been mostly attributed to the weak economic outlook for China. Evidently, HSBC/Markit manufacturing Purchasing Managers’ Index (PMI) for China in January 2015 was at 49.7, indicating a contraction in factory activity,” said the research house.
China’s steel consumption remains subdued amidst a softer real estate market which was reflected by a 5.1 per cent on year decline in newly built house prices in Jan 2015, a fifth consecutive monthly decline.
Despite the imported iron ore benchmark price declining to US$67.39 per metric tonne in January 2015, China’s total iron ore imports declined 9.5 per cent on month to 78.6 million metric tonnes (mmt) while iron ore inventories eased to 91.3mmt as of February 2015 indicating a drawdown in supplies.
“We observe that China still prefers to import the bulk of its iron ore from Australia as opposed to Brazil.
“In addition, Brazil has just recently sorted out issues pertaining to the docking of its very large ore carrier (VLOC) the Valemax which was previously not allowed to dock in China.”
Recall that the inclination of China importing its iron ore from Australia weighs on BDI rates as the Australia-China route is three times shorter than the Brazil/China route and thus commands lower rates.
As of February 2015, the dry bulk fleet on order and under construction remains robust with 1,260 vessels on order and 334 vessels under construction.
This further exacerbates the overcapacity after an expansion in DWT which outpaces the dry bulk trade growth of four per cent on year in FY14.