Global freight rates for bulk commodities such as iron ore, coal and grains are declining due to moves by the Chinese government to slow demand and cool that country’s racy economic growth.
The Baltic Handymax index on London’s Baltic Exchange peaked at an all-time high of 355,12 points in mid-March and was last quoted down 17% at 295,29 points.
China is both the world’s largest consumer and manufacturer of steel.
The main move that has reduced freight rates has been the decision by the Chinese government to limit imports of iron ore — a key input in the production of steel.
Stockpiles of steel products in China have also rocketed and there are fears in China of impending over-production. The Chinese Central Bank has also increased the reserve requirement that China’s major banks need to hold as another measure to stem demand.
“The move by the Chinese central bank to increase the reserve requirement for China’s banks has knocked freight rates, as this could result in a credit squeeze. Freight rates have come off, but you must bear in mind that in March they went to their highest levels in living history,” a market source in South Africa said.
“China is attempting to ‘squash’ the global market, especially for freight. The two key imports that have caused the spike in freight rates are iron ore and coking coal, both inputs in the making of steel,” he added.
Freight rates for shipping agricultural products, such as maize, wheat and oil seed, from Argentina’s River Plate to South Africa have declined from highs of between $65 and $70 a ton to current levels in the mid-$50s a ton, the source said.
South Africa is currently importing yellow maize and wheat from Argentina to meet the country’s need for both grains.
“I think the current retracement in freight rates is only a short-term move. I see rates ‘nipping’ up again,” he added.
The Baltic Handymax index increased more than fivefold from February 2002, when it touched a low of 65,2 points, to the mid-March 2004 high of 355,12 points.
During 2003 the Baltic Handymax index moved from 94,60 points in January to close almost three times higher at 262,44 points in late December 2003. ‒ I-Net Bridge