Baltic index falls, growth worries watched

LONDON: The Baltic Exchange's main sea freight index , which tracks rates to ship dry commodities, fell to its lowest in more than three months on Tuesday as a continued slowdown in cargo trade took its toll.

Brokers said the market was watching for further signs of slowing economic growth, which would hit demand for commodities, after weak global manufacturing and consumer spending data was published this week.

The overall index fell 0.24 percent or 3 points to 1,253 points in an 18th session of straight declines and was at its lowest since April 26. The index has stayed erratic in recent weeks and has declined over 25 percent this year.

Michael Webber, senior analyst with Wells Fargo Securities, said decreasing South American grain and Indonesian coal fixtures had weighed on the dry bulk market.

"Although some of the decline is likely due to seasonal factors, we note that the market remains oversupplied, with softer demand likely keeping pressure on rates over the near-to-intermediate-term," Webber said.

Uncertainty over prospects for the world economy could also potentially hurt demand for raw materials.

"I hope this is a short lived seasonal slowdown in the West," said Georgi Slavov, head of dry research and structured products at broker ICAP Shipping.

World stocks hit a one-month low on Tuesday and the euro fell broadly as investor focus shifted back to weak global growth prospects and the euro zone debt crisis after a US budget deal that will lead to spending cuts of over $2 trillion.

"Amongst all these oversupply issues the demand side is starting to lose some of its growth momentum as debt problems in America and Europe increase uncertainty worldwide," Greek ship broker Intermodal said.

Intermodal said worries of a slowdown in steel production in India and China were also feeding into the dry bulk sector.

"With many of the major economies showing difficulty in keeping their debt problems under control, freight levels could start to head further south for dry bulkers," it said.

The Baltic's capesize index rose 0.63 percent, with average daily earnings inching higher to $9,356 a day, staying below the key $10,000 a day level for the fourth straight session. Capesizes typically haul 150,000 tonne cargoes such as iron ore and coal.

The Baltic's panamax index fell 0.8 percent. Average daily earnings for panamaxes, which usually transport 60,000-70,000 tonne cargoes of coal or grains, reached $11,897.

Brokers said they were watching for further developments in China, which is facing its worst power shortages in years and likely to have an impact on dry freight activity.

Coal workers in South Africa ended a week long strike. Brokers had said protracted disruptions would have hit cargo trade volumes from one of the world's top five coal exporters.

"The now concluded strikes have not affected South African coal shipments," said Jeffrey Landsberg, managing director of dry bulk consultancy Commodore Research.

"Five South African coal fixtures came to the market last week, two more than the previous week and up from the trailing four week average."

Copyright Reuters, 2011