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Thursday, 2 October 2008

Posted: Thu Oct 02, 2008 5:53 pm Post subject: Baltic Dry Index sees biggest falls on record

It's down 66% for the quarter and 53% for the month amid Chinese holidays and falling demand

Published October 2, 2008

LONDON) The Baltic Dry Index, a measure of shipping costs for commodities, had its biggest monthly and quarterly drops on record as Chinese holidays curbed chartering and raw material demand from the country's steelmakers weakened.

The index tracking transport costs on international trade routes fell 287 points, or 8.2 per cent, to 3,217 points, according to the Baltic Exchange in London. That's a 66 per cent drop for the quarter, a 53 per cent monthly slide and the lowest since July 24, 2006.

'It's definitely been the effect of lower activity during the Olympics and the holidays now,' Rikard Vabo, an analyst with Oslo shipbroker Fearnley Fonds, said in an interview on Tuesday.

Chinese steel demand is weakening as property prices fall and builders' focus shifts away from luxury housing that is more steel-intensive, he said.

China's urban housing demand has dropped since minimum down payment requirements and some mortgage rates rose last year. Property prices climbed at the slowest pace in 18 months during August, the National Development and Reform Commission said on Sept 16. Some steel mills, forced to shut for the Beijing Olympics and Paralympics, have not reopened. China's financial markets are shut through Oct 5 for National Day holidays.

Falling freight rates dragged down China Cosco Holdings Co, the world's largest operator of iron ore and coal ships. The shares fell a sixth day in Hong Kong trading, closing 3.2 per cent lower. They earlier plunged as much as 13 per cent.

Rates for capesize vessels for hauling coal and iron ore fell 5.9 per cent to US$41,159 a day, a 65 per cent decline for September. Investors bet they will fall to about an average of US$39,813 in the fourth quarter, forward freight agreement (FFA) data from Oslo-based broker Imarex NOS ASA showed.

As recently as Sept 5, investors expected the rates to jump 50 per cent in the last three months of the year. FFAs are used to bet on future freight prices.

Rents of smaller panamax vessels dropped 19 per cent to US$19,294 a day. That's the first drop below US$20,000 since June 2006. FFAs showed investors expect an average of US$23,500 in the fourth quarter.

FFA trading rose to a record last week as spot, or immediate market chartering rates, dropped, according to London-based broker Freight Investor Services. Volumes reached 85,693 lots through Sept 26, strategic director Michael Gaylard said.

One lot equals a day's ship rental costs or 1,000 tons of cargo. The previous record was 85,093 lots in the week ended Jan 18. The volume is derived from trades notified to the Baltic Exchange in London, Mr Gaylard said. -- Bloomberg

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