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Baltic ship index at all-time low on vessel glut, China demand drop

[BENGALURU] The Baltic Exchange's main sea freight index, tracking rates for ships carrying dry bulk commodities, slumped to a new all-time low on Friday, pulled down by a vessel glut and slowing industrial demand from China.

The dry cargo shipping industry has been hit hard this year by the global commodities meltdown, coupled with a wave of ship deliveries - and more bulkers are expected to hit the water in coming months.

The overall index, which gauges the cost of shipping cargoes including iron ore, cement, grain, coal and fertiliser, was down 6 points, or 1.19 per cent, at 498 points, the lowest ever level for which Baltic data is available that dates back to January 1985.

The BDI index is seen by investors as an indicator of global industrial activity.

Chinese imports of coal and iron ore have remained weak in recent months and worries over the health of the global economy have also dented dry bulk shipping prospects. Subdued grains activity has also hit earnings.

The capesize index, shed 13 points, or 2.10 per cent to 606 points on Friday.

Average daily earnings for capesizes dropped US$69 to US$5,211. Capesizes typically transport 150,000-tonne cargoes such as iron ore and coal. "The BDI will carry on being low for some time going forward," said Marc Pauchet, senior dry analyst with broker Braemar ACM. "On the demand side the pressure on commodity prices has been applying an extra lid on freight rates, with charterers finding it difficult to justify higher freight costs as a proportion of commodity value on a cost and freight basis." Future capesize rates are lower, around US$4,800-$4,900 for first quarter of 2016, indicating that rates are going to weaken further, a shipping industry source said. "We are already hearing of some owners laying up vessels. With the wave of deliveries coming up this year, we are likely to continue seeing the very high level of scrapping we saw this year," Pauchet said.

A lay-up is when a ship is taken out of service, with some or all of the crew taken off. In a cold lay-up, a ship is mothballed, with only dehumidifiers to keep it from deteriorating.

The panamax index, which usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, fell five points to 463 points. Average daily earnings for panamaxes, slid by US$41 to US$3,696.