Baltic Dry Index Falls To Two-Month Low

The Baltic Dry Index, a measure of world trade, fell to the lowest in more than two months on speculation Chinese demand is waning for iron ore to make steel.

The index of commodity-shipping costs on international routes slid 20 points, or 1.3 percent, to 1,486 points, according to the Baltic Exchange today. That’s the lowest since Feb. 4. Rents for capesize vessels that typically ship iron ore had a 10th straight retreat to $17,081 a day, while rates for smaller panamax ships that compete for the cargoes and also carry grains fell 3.6 percent to $9,162 a day.

“China started buying more iron ore in late 2008 and early this year as Chinese steel prices recovered,” Alain William, an analyst with Societe Generale SA in Paris, wrote in a report dated April 3. “There are now fears that too much material is being stocked up in Chinese ports.”

Demand for steel from carmakers and builders has slumped with the world economy, expected to shrink 1.7 percent this year by the World Bank. Iron ore stockpiles in China, the world’s biggest steelmaker, grew 14 percent last month while domestic prices for hot rolled sheet, a benchmark product, fell 3.4 percent.

Steel demand globally will shrink 9 percent in 2009 compared with last year, Citigroup analyst Johan U. Rode in London wrote in a report dated April 3. That will cut demand for premium-grade and higher-priced iron ore, the report said. David S. Martin, a New York-based analyst with Deutsche Bank AG, expects global steel consumption to contract 17 percent this year, according to a report dated today.

The 265-year-old Baltic Exchange, seeking to encourage more freight-market speculation by hedge funds and other investors, plans to introduce an index of rates for hiring dry-bulk vessels in coming weeks, Chief Executive Officer Jeremy Penn said by phone today.

Trades in so-called forward freight agreements, used to bet on shipping costs, fell 27 percent from a year earlier in the fourth quarter, London-based shipbrokers Simpson, Spence & Young said on Jan. 7.

Source: Bloomberg