By Jonathan Saul

LONDON, Nov 20 (Reuters) – A droop in dry bulk transport is about to worsen because the meltdown in international commodities and too many ships free for rent rock the sector utilized by buyers to gauge the well being of world commerce.

Slower coal and iron ore demand from China – the world’s largest industrial importer – have battered the dry bulk sector, already within the midst of its worst ever downturns that’s anticipated to increase properly into subsequent 12 months.

This week the Baltic Exchange’s principal sea freight index , which tracks charges for ships carrying dry bulk commodities and seen by buyers as a forward-looking indicator of world industrial exercise, plunged to an all-time low.

A droop in oil and different commodity costs, attributable to slowing Chinese demand, has extensively been seen as one of many causes for U.S. Federal Reserve hesitancy in tightening coverage.

“Dry bulk demand is very much dependent on the world economy,” mentioned Symeon Pariaros, chief administrative officer of Athens-run and New York-listed transport agency Euroseas.

“The slowdown in the world economy has caused both dry bulk and container shipping to suffer a lot lately. Euroseas, having exposure in both these sectors, is facing the consequences of this very low rate environment.”

The Baltic’s BDI index, which gauges the price of transport assets together with iron ore, cement, grain, coal and fertilizer, has dropped to 498 factors and is over 95 % down from its all-time excessive of 11,793 factors in 2008 earlier than the monetary disaster first harm the sector.

“Demand slowing down and (ship) supply continuing to increase are the reasons why we will see the BDI likely hit figures in the 400 point level, which would be absolutely uncharted territory for the market,” mentioned Khalid Hashim, managing director of Precious Shipping, certainly one of Thailand’s largest dry cargo house owners.

JAPANESE CASUALTY

Worries over China and the well being of the world economic system have additionally pushed the 19-commodity Thomson Reuters/Core Commodity CRB Index to close 13-year lows in current days, mirroring partially among the ache felt by dry freight gamers.

“You can’t ignore the role of sentiment in the markets. Right now dry cargo shipowners’ heads are down and they are taking a daily battering at these earnings levels,” mentioned Tony Foster, chief govt of British transport asset supervisor Marine Capital.

“The market is clearly very weak in the short-term and 2016 is going to be very difficult.”

There have already been casualties. In September, Japanese bulk service Daiichi Chuo Kisen Kaisha filed for defense from collectors. This adopted personal fairness backed Global Maritime Investment Cyprus Ltd, which filed for Chapter 11 chapter safety within the United States.

While prospects for commodities markets are shaky, the dry bulk freight gamers may also must cope with extra ship deliveries hitting the water in coming months.

“More vessels have to be scrapped, no additional newbuildings (new ship orders) and further delay deliveries – all these take time, more than one year, implying that in the interim the market will be ugly, and a great number of shipowners will not have the cash to bridge the weak market,” mentioned Basil Karatzas, head of New York consultancy and brokerage Karatzas Marine Advisors & Co.

“Some may be flexible to get money from funds for working capital … and otherwise sacrifice some equity to save the business, but many small shipowners will be washed out.”

(Editing by Veronica Brown and William Hardy)

(c) Copyright Thomson Reuters 2015.

Monthly Insights from the Helm

Dive right into a sea of knowledge with our meticulously curated weekly “Dispatch” e-mail. It’s greater than only a publication; it’s your private maritime briefing.

Sign Up