Rising Baltic index to lift Indian shipping firms with spot contracts

The index has jumped 45 per cent in the last one month on increased imports of iron ore

Only those Indian companies would benefit from the Baltic Dry Index’s rise in the last one month that have more spot contracts, especially for iron ore, say analysts and industry officials said on Saturday.

'The index that tracks global freight rates for ships carrying dry-bulk commodities, such as coal, iron ore and grains, has jumped 45 per cent in the last one month on increased imports of iron ore, mainly from China, the world’s largest steel producer.

“Shipping rates on the spot market have increased in the range of 40-70 per cent in the last one month, with demand strong for even the small ships like the Handymax and Supramax,” a Shipping Corporation official told Business Standard.

In September also, the index rose 43 per cent but Indian shipping companies failed to reap the benefit because the bulk of the demand was for Capesize ships, where international shipping companies have an upper hand. These are large carriers usually above 150,000 deadweight tonnage.

Demand for small ships this time will benefit Indian shipping companies depending on the extent of their exposure to the spot market and on iron ore exports to China.

“A lot depends on whether a shipping company is more into spot or into long-term contracts,” said Bharat Chhoda, senior analyst with ICICI Securities Ltd. “A company more into long-term contracts might lose on the current opportunity if it has tied up at a lower rate,” he said.

Anoop Sharma, director and chief executive, sea transport, Essar Shipping, said: “We have one Capesize and also a VLCC (very large crude carrier), for which spot rates have gone up and we will be taking advantage of this rise in the index.” The company has its fleet divided equally between long-term and spot contracts.

Shipping Corporation has a balanced number of each kind of contracts, while 70 per cent of Great Eastern Shipping’s contracts are spot.

India was the third largest iron ore exporter to China, after Australia and Brazil. But due to the ongoing mining ban in Goa and poor exports from Karnataka, the country has been losing on this export opportunity.

Said the Shipping Corp official: “There isn't much of outbound (trade) from India since we have a ban on iron ore exports.” “There is a bit of ore moving out from Karnataka but not in very large quantities,” he added. “Shipping companies are losing on that opportunity.”

Industry officials were uncertain whether the Baltic Dry Index would sustain the recent rise, given Christmas & New Year and an oversupply of ships.

Said Chhoda: “It is difficult to give a level for the index but don't see it even touching 3,500 in coming sessions, which is a level for Indian shipping companies to break even.”

On Friday, the index ended at 2,176, up 1.45 per cent from its previous close.

An industry official said: “The current upward trend in the index could also be a spike ahead of the Christmas and New Year season.” “We need to wait and watch how long this uptrend continues. Only then companies can say if the rise has helped them,” he said.

Sharma of Essar Shipping said: “This increase (in index level) is winter season demand and it won’t sustain beyond another two weeks.”