The Baltic Exchange's main sea freight index .BADI, which tracks rates to ship dry commodities, rose 2.0 percent on Tuesday in a second day of gains while further volatility was expected.
The Baltic Exchange's main sea freight index .BADI, which tracks rates to ship dry commodities, rose 2.0 percent on Tuesday in a second day of gains while further volatility was expected. The index, which gauges the cost of shipping resources including iron ore, cement, grain, coal and fertiliser, rose 68 points to 3,475 points on Tuesday after falling all of last week. "Over the last week what we have seen reflects the volatility. We expect that to continue," said Will Fray, shipping analyst with London-based consultants MSI. "Right now it is dependent on China."
The index hit a more than eight-month high on June 3 of 4,291 but has been erratic since then. Chinese demand for iron ore -- the primary material in the manufacture of steel -- has driven freight market activity. In recent months heavy congestion at China's ports tightened the supply of Capesize vessels -- typically hauling 150,000 tonne cargoes such as iron ore -- and helped push the main Baltic index higher but also added to swings in freight rates. Port congestion in China as well as off Australia's coast had tied up a large number of Capesize vessels. Brokers and analysts have said short-term movements of the main index continued to be dominated by the availability of Capesize tonnage.
The Baltic's Capesize index .BACI rose 4.21 percent on Tuesday in another day of gains. China's appetite for overseas iron ore may drop by a fifth in the second half after record buys in the first half, as high spot prices encourage the reopening of idled domestic mines, a Reuters poll showed.
While brokers have noted signs of raw materials restocking in Japan and Europe, Chinese activity is expected to dominate the direction of the main index.
"Over the next few months it could come off the boil quickly if recent over-zealous Chinese import activity slows as we expect, particularly if the money supply tightens there. But China continues to surprise on that front," MSI's Fray said.
Concerns continue to grow over the rising number of ships set to hit the market this year, which is likely to weigh on freight rates given poor global appetite for commodities and an economic slowdown, analysts said.
"We still have a huge amount of new tonnage which will weigh on the market in the coming months. This will be accentuated if vessel queues in China begin to dissipate," Fray said.