Baltic Dry Index hits new high

Chinese earthquake, steel demand pushes ocean freight rates skyward

By Dave Hannon -- Purchasing, 5/19/2008 1:50:00 PM

Dry bulk ocean freight rates spike to hit a new high on the Baltic Exchange’s Drybulk Freight Index this week. Monday’s 11,709 index reading tops the previous high set in November. Lloyd’s List reports that the cost to charter a capsize vessel may top $300,000/day by the end of this week.

Why the big jump? The usual market trends are impacting ocean freight: continuing demand for raw materials to make steel and metals in China has been booming. Peter Norfolk, an analyst with shipbroker Simpson, Spence & Young told Bloomberg recently that with steel prices climbing higher, Chinese steelmakers are ramping up production, increasing demand for bulk tankers to bring coal and iron ore to China from markets like Australia and South America. And some Brazilian ports are just returning to full capacity, increasing demand for ships.

Specifically, some media outlets are reporting that BHP Billiton chartered 17 capesize vessels to carry iron ore to China this week.

But as Forbes.com reports, the earthquake in China last week has also contributed to the ocean freight rate spike. Jefferies analyst Douglas Mavrinac tells Forbes that lack of supply from earthquake-devastated regions will mean seaside areas will need more imports that come via ships.

“Essentially all of those nonfundamental factors that caused rates to decline in the first quarter are no longer an issue and rates are back to October/ November levels,” Mavrinac said