Panamax market struggling with fleet supply
The Baltic Exchange’s main sea freight index, which tracks rates to ship dry commodities, rose for a second session on Tuesday helped by firmer bookings on the larger capesizes.
Nevertheless, the shipping sector was set to see more turmoil in the coming months as a supply glut and growing economic gloom would keep earnings under pressure.
The overall index rose 19 points or 1.05 percent to 1,828 points. Prior to Monday’s rise, it had fallen for six straight sessions.
“The Atlantic (capesize) market is tight on tonnage and this of course, combined with fairly strong Brazilian exports, is keeping the market well supported. But it is not enough to make it fly,” said Georgi Slavov, head of dry freight & basic resources research at ICAP Shipping, adding he did not expect capesize rates to rise much further.
Capesizes, which typically transport 150,000 tonne cargoes such as iron ore and coal, had driven a recent rally helped by firmer coal and iron ore exports from Australia and Brazil to China as well as a pick-up in Japanese coal imports. A build up of port congestion had also provided support.
“We expect continued volatility for dry bulk rates, as the oversupply of tonnage erodes brief periods of strength stemming from increased activity, most notably Chinese iron ore imports,” said Michael Webber, senior analyst with Wells Fargo Securities.
Iron ore shipments account for around a third of seaborne volumes on the larger capesizes, and brokers said price developments remained a key factor for dry freight.
The Baltic’s capesize index rose 3.73 percent on Tuesday, with average daily earnings reaching $27,206. Last month they hit their highest level since November 2010.
“The Capesize segment appears to be strengthening again, buoyed by higher freight rates in the Pacific. The Australian mining companies have been active fixing vessels from West Australia to China with iron ore, from ports such as Port Hedland and Dampier to Qingdao,” broker Lorentzen & Stemoco said.
In August, the overall index, which gauges the cost of shipping commodities including iron ore, coal and grain, fell for 18 consecutive sessions and reached its lowest in more than three months. It has remained erratic and is still down 15 percent from the same period last year.
The Baltic’s panamax index fell 1.13 percent. Average daily earnings for panamaxes, which usually transport 60,000-70,000 tonne cargoes of coal or grains, reached $13,979.
ICAP’s Slavov said the Pacific panamax market remained oversupplied with vessels.
“The Atlantic has been other under pressure and has not been performing that well because of the lack of coal and grain in,” he said. “There is more coal coming but it is not enough to the support the market.”
Growing ship supply, which is outpacing commodity demand, is set to cap dry bulk freight rate gains in the coming months, with economic uncertainty and a slowdown in China adding to headwinds.
Euro zone economic sentiment fell more than expected in November, data showed on Tuesday, as business managers turned more pessimistic across almost all sectors of the economy, particularly in France and theNetherlands.
Source: Reuters