Baltic Dry Index rise fails to enthuse Indian shippers

Sustenance of dry bulk demand holds the key

Though the Baltic Dry Index has been moving upward since the beginning of September, India's top shipping companies would not benefit immediately because of their small-sized vessels, industry officials and analysts said.

The Baltic Dry Index, which tracks global freight rates for ships carrying dry-bulk commodities such as coal, iron ore and grains, was up 5.65 per cent at 1,628. It has risen 43 per cent so far this month.

"The dry bulk cargo demand at this point in time is for all the Capesize ships," an official from the Shipping Corporation of India told Business Standard. "Due to this, Indian shipping companies are not really benefitting as most have smaller-sized ships like Panamax, Supramax and Handymax," he added.

Capesize vessels are typically above 150,000 long tonne deadweight (DWT) transporting coal, ore, and other commodity raw materials.

A standard capesize bulk carrier is around 175,000 DWT, although larger ships catering to ore transportation have been built up to 400,000 DWT.

A spurt in China's demand for iron ore and coal from Brazil and Australia has helped push up global shipping freight rates in the last few sessions, said analysts.

"Since developed economies like the US and Europe are also picking up, demand for Capesize (ships) is increasing in the Atlantic and Mediterranean region,"said the Shipping Corporation of India official.

"Yes, the (demand) rise is only in the Cape market right now," said Anoop Sharma, director and chief executive officer, Sea Transport Business, Essar Shipping Ltd. "That is the only segment that is looking up, the rest continue to stagnate," he said.

However, analysts were of the view that a sustained rally in the Index might bring in demand for smaller-sized ships which in turn, would benefit Indian shipping companies.

"Although the (Indian) shipping industry is not benefitting right now, it is not completely disconnected," said Bharat Chhoda, assistant vice president with ICICI Securities Ltd. "There are only certain number of Capesize ships and so if the demand continues, gradually the small size ships would gain demand," he said.

"Only if there is dearth of Capesize ships would the demand for smaller ones come in,"said the Shipping Corporation of India official.

"Once the Capesize ships become too costly (to hire), parcels would be broken down and this is when demand for Panamax and Supramax would trickle in," an industry official from one of the leading shipping companies said.

Views remained mixed on whether demand for dry bulk from China and developed economies would continue and even if the demand remains strong, for what period would be anybody's guess.

"The dry bulk supply is rising at four-five per cent, while the fleet addition (globally) is at 10 per cent to the already high supply market,"said Chhoda. "In such a scenario, we do not see the rise in the Index sustaining (as the supply is high)," he added.

"The Chinese economy has stabilised and so, we see a modest rise in demand for iron ore and other commodities," said Bhavesh Chauhan, senior research analyst with Angel Broking. "Iron ore prices have also moved up 10 per cent in the last three months and might remain at these levels."

"Chinese stocking of iron ore inventory seems to be increasing," said Siddharth Khemka, vice-president-research of Centrum Wealth Management Ltd. "Also, the country is an exporter to developed economies such as Europe and the US, where demand is on a rise. So, we see the freight rates moving up further," he added. "The rise in Baltic Dry Index appears to be a very temporary phenomenon with only Cape size looking up," said Sharma of Essar Shipping.

"The US has about 40 million tonnes of grains that are to be exported mainly to Europe and West Asia,"said the industry official of the leading shipping company. "Since grains are a perishable cargo, it is economical to send the commodity in Panamax and Supramax. Due to this, demand for Indian small size ships should pick up in the coming months," he said.

All in all, India's shipping companies are set to benefit only if the dry bulk cargo demand continues to remain strong in the coming months.