October 21, 2008

Economy woes pressure sea freight prices to 6-yr low

* Reuters
* , Tuesday October 21 2008

By Stefano Ambrogi
LONDON, Oct 21 (Reuters) - The Baltic Exchange's dry sea freight index <.BADI> for raw materials trade fell to a six-year low on Tuesday, approaching rates not seen since the Asian financial crisis in 1997-1998, analysts said.
The London-based index, which measures ocean freight prices to haul commodities like iron ore, coal, cement and grains on some of the world's top export routes, fell 63 points, or 4.65 percent, to 1,292 -- its lowest level since October 2002.
Analysts have pinned the drop from a record in May on falling commodity prices, fears of global recession, the financial crisis, fleet growth and slowing iron ore demand from China.
"You had strong trade and fleet growth earlier this year, then you've had this fall in commodity prices and collapse in steel production so all of a sudden you've got high fleet growth and trade has fallen away," said Peter Norfolk, a director at Simpson, Spence & Young ship consultancy in London.
Norfolk also said Brazilian miner Vale's suspension of iron ore supplies to some Chinese steel mills, part of hard-nosed price negotiations, have also pressured rates.
"Front-haul trade (Brazil to China) has collapsed because of this standoff over iron ore shipments, one of the main drivers of the market," he said.
"For this to be removed for the time being is going to have a massive effect on trade volumes," Norfolk said.
Prices to deliver resources are fast approaching levels last seen during the 1997-1998 financial crisis when trade stalled.
Ocean trade in resources was also hit hard after the al Qaeda September 11 2001 attacks on the United States, with rates striking a life low of 843 points in November of that year.
"Global GDP fell from some 5 percent in 2000 down to a bit less than 2.5 percent in 2001 so we had a real slowdown," Norfolk said.
"Dry commodities trade was still in positive territory for 2001 and 2002 but grew a lot slower...in 1998 trade growth actually went negative," he saidguardian.co.uk © Guardian News and Media Limited 2008