Wednesday, January 12, 2011

Rains Fall And Baltic Dry Index With Them

Glut of Shipping Capacity as Disaster Continues
Shipping News Feature

AUSTRALIA – WORLD WIDE – The harrowing pictures of the vast floods in Queensland help to illustrate the despair of the nation to cope with what may well prove to be even worse than the damage felt in the 1974 disaster. With more than 70 people unaccounted for so far every facet of life in the state has been affected and the ramifications are likely to continue for some time to come.

As we have reported previously lines of bulk freight vessels have been queuing up at the main coal export ports awaiting cargo which will not be surfacing at its usual rate for some time yet. The ore carriers are used to a continuous stream of product, albeit they may wait a few days to load, stocks are normally piled ready and waiting for the next in line.

As the effects of the rain travel southward more mines are closing to add to the forty or so already shut by the floods. The closure of the New Hope mines yesterday and further closures of rail freight tracks, hitherto untouched, has reduced the mines ability to produce their primary export grades, most of which travel directly to China. The writing was on the wall when force majeure was introduced as we reported a month ago and the situation has deteriorated ever since.

As detailed by BIMCO, whose members include many bulk carrier owners, the outlook for the sector is already bleak without factoring in this latest crisis. With over 130 of the largest vessels now moored off the Australian coastline awaiting cargoes the effect is bound to ripple through to shipping rates and fears are that the Baltic Dry Index (BDI), barometer of the industry, will continue its downward slide. Since the last peak in September last year the Index has more than halved finishing on a lowly 1480 having descended continuously from the 6th December.

Already ships are turning away to seek coal elsewhere in a bid to fulfil contracts and, with no clear evidence of when many pits will return to anything like normal production it is anticipated there will be a scramble to purchase globally available stocks for the months ahead. In 2008 coal prices soared when heavy rain caused production to fall. Now, with downpours also affecting mine output in South America and Indonesia, and up to 40% of global coking coal likely to be subject to force majeure at any time, prices will presumably continue to rise in the short term whilst freight rates travel in the opposite direction.

What should be remembered however is the Australian nation is not one to cry over spilt milk, there is a determination in the entire country to get the stricken North Eastern and Eastern territories back to normal as quickly as possible, and that includes the reinstatement of normal mine output.