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Bulk shipping rates seen to go up next year
Bloomberg
Page 19
2008-11-17 12:00 AM
China Cosco Holdings Co., the world's largest operator of dry-bulk ships, expects rates to jump from near six-year lows, helped by U.S. interest rates cuts and infrastructure spending in China.

"The decline came fast and will be gone quickly," Chairman Wei Jiafu said at a shipping conference in Dalian, China. "The unusual drop was because of investors' panic amid the global financial tsunami."

The Baltic Dry Index, a measure of commodity shipping costs, has declined 93 percent since hitting a record in May as traders struggle to find financing for shipments and steelmakers curb production. Rates may rise next year, driven by growth in China which has avoided the worst of the global slowdown, Wei said.

"The impact is limited in China," he added. "With a population of 1.3 billion, demand is still strong."

The Baltic Dry Index more than tripled in three years, reaching a record 11,793 on May 20. It's since tumbled to less than 1,000. Next year, it may return to around 3,000, helped by delays in the deliveries of new vessels and demand for iron ore, coal and grains in China, India, the Middle East and Africa, said Gao Hongsen, Sinotrans Group's vice director of research.

"The worst has passed already," he said. Demand will grow more quickly in 2010 through 2012 than next year, he added. Sinotrans Group is the parent of Hong Kong-listed Sinotrans Shipping Ltd.

Central banks in the U.S., China, India and Europe have cut interest rates in a bid to thaw frozen credit markets and to revive slowing economies. Governments may also increase spending on infrastructure projects, which would help bulk-shipping lines by reviving demand for steel and iron ore, said Philip Embiricos, president of The Baltic & International Maritime Council, a shipping group, with some 2,600 members, including shipowners.

"It depends on what governments do," he said. "See what happened in the U.S. in 1930s. They had a depression and the government started doing all sorts of public works."

China is also planning to spend 5 trillion yuan (US$732 billion) over the next three to five years on roads, ports and other transport projects, China Business News said on Nov. 5.

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