(Montel) The Baltic Dry Index (BDI) has retreated 6% from nine-year highs seen earlier this month amid signs of flagging Chinese iron ore and coal import demand and despite a lingering tightness in vessel availability.
The BDI – a bellwether for global dry freight rates – was assessed last at 2,422 points.
Last Wednesday, the index reached its highest level since November 2010, of 2,581 points.
Hans Gunnar Nåvik, senior analyst with Oslo-based StormGeo, said the recent market strength had been driven by a combination of strong Chinese import demand for iron ore and coal – as well as persisting Indian coal import demand – and a lack of vessel availability.
Chinese coal imports in August rose 15% on the year to around 33m tonnes, according to customs figures.
And weak Indian domestic coal production levels this year had spurred demand for imported material, Nåvik said, adding, however, the higher freight prices had become a “big hurdle” for importers.
There were now signs of a possible slowdown in Chinese and Indian coal buying and weakening Brazilian iron ore exports.
“It’s easier to add up negative drivers than positive drivers,” he said, adding, however, the “big question” was how many vessels had been taken out of the market in preparation for new International Maritime Organisation (IMO) rules, which come into force in January and will see the fuel oil sulphur limit slashed to 0.5% mass/mass from 3.5%.
Scrubber fitting
“Now we are so close [to the new rules taking effect] so most likely a large share of the world capesize fleet is in for installation of scrubbers, which is keeping [vessel availability] down,” Nåvik said, though adding the number of vessels affected might already have peaked.
Scrubbers – more officially known as “exhaust gas cleaning systems” – can be retrofitted to vessels and “clean” the emissions before they are released into the atmosphere.
The Baltic Exchange said, in a weekly briefing, the recent gains were due in part to tighter capesize vessel availability, particularly for arrival in September, but also cited the impact of the so-called IMO 2020 preparations.
“Vessels [are] preparing tanks to receive cleaner fuels, while others are installing scrubber units to process high sulphur fuel on the go,” the exchange said, noting this was causing delays and disruptions to vessel availability.
Reporting by:
Laurence Walker
laurence@montelnews.com
12:01, Tuesday, 10 September 2019