Shipping companies are in troubled waters with London’s Baltic Dry Index falling sharply in the last three months. The index, which measures freight rates for bulk commodities — mostly iron ore, coal, and grains — has fallen by a whopping 67% to 2,990 points till October 2 from its average peak of 8.936 points in July.
The index, widely regarded as a barometer of the world economy, has fallen further since then, igniting fears that China’s
demand for
com
modities may be cooling.
The Street is worried. The shares of most shipping firms have plummeted 15 to 37 per cent, sharper than the 13 per cent fall in the Sensex in the same period. Varun Shipping has fallen 15.23 per cent, while GE Shipping has slumped 19.69 per cent and Shipping Corporation of India (SCI) 29.59 per cent. Essar Shipping has been the biggest loser, falling 37.46 per cent.
A senior shipping analyst with a leading brokerage house said China was sitting on a huge inventory of iron ore and was waiting for Brazil to complete the renegotiation of iron ore prices with the leading steel makers in Asia. “We expect a strong buying demand from China, which will again push the Baltic Dry Index northwards in the short term,” he said.
One reason cited for this standoff between Brazil and Asian steel makers is the higher iron ore prices being charged by Australia than Brazil. Since the freight rate is lower between Australia and China than that between Brazil and China, Australia is charging a higher price for its iron ore. This has prompted Brazil to renegotiate iron ore prices with leading steel makers in Asia, says a senior executive of a domestic shipping company.
So if you like shipping sector do see Baltic index before you jump in to buy these companies:)
Regards
Rish
