Golden Week takes shine off dry bulk earnings

 

Dalian: Having only just crested the psychologically important 2,000 barrier, the Baltic Dry Index (BDI) is expected to fall back as China’s holidays kick in today through to next Tuesday, with analysts questioning the sustainability of the brief capesize bull run, which was largely built on China’s restocking of iron ore. Capesize rates soared to higher than $40,000 a day last week, but the steam is coming off the run. The BDI fell 2.1% to 2,003 on Monday.

Citi’s latest Global Transportation report noted that in the longer term, China end demand remains a “concern”. 

“Strong Chinese steel production and iron ore imports in recent months have led to a surge of net exports of steel products, indicating steel production may have become excessive. Weaker demand and significant iron ore supply will likely depress the ore price and eventually hurt the volume exported by miners. In addition, dry bulk shipping remains largely oversupplied. We believe the shipping rate will turn and drop after when iron ore shipment slows down,” Citi said in a report out today. 

Yesterday, Jefferies also poured cold water on the cape run. “Capesize spot rates started to fall while the Panamax to Handysize spot rates moved up last week, which is in line to our expectation that Capesize spot rates have peaked relative to other ship classes,” analysts at Jefferies in Hong Kong noted. 

Wells Fargo Securities, meanwhile, said an easing of rates was inevitable during the Chinese holidays. 

“Our dry bulk channels and FFA contacts expect the market to continue easing week amid the Chinese Golden Week holiday, potentially moving closer to approximately $30,000 per day, with the October/November timeframe an interesting barometer for the market,” the New York bank said in an note to clients yesterday.  [01/10/13]

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