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Commodities

Baltic Dry Index surges on growing Chinese freight demand

Iron ore imports to the second-largest economy tip the scale

The increase in cargo headed for China is fueling a rise in the Baltic Dry Index.

TOKYO -- Sea freight prices are on the rise for small, medium and large bulk carriers, with the Baltic Dry Index lifting to a high last seen in November 2014 on Tuesday, thanks to robust Chinese demand for iron ore.

The benchmark index hit 1,333 Tuesday after increasing 11% over the past week. The figure is up more than 90% from mid-February, as rates for large vessels carrying cargo such as iron ore continue to rise.

Charter rates for capesize bulk vessels, those with roughly 170,000 deadweight tonnage, rose to a daily average of about $20,660, climbing 16% in a week and reaching 350% above a mid-February low to top $20,000 for the first time since August 2015.

Chinese demand for imports is growing, particularly for iron ore used in road and railway construction. Furthermore, more Chinese businesses are preferring Australian and Brazilian varieties over domestically mined iron ore because of its higher iron concentration.

Contract closings on the spot market for capesizes doubled to roughly 40 ships in March from the previous month. Resource companies eyeing the surge in Chinese demand have been making "mass contract closings," according to a freight broker. Rates to transport materials between China and Brazil also rose to around $16.8 per ton, up more than 50% over the past month.

Average daily rates for Panamax vessels (those that can fit through the Panama Canal), with about 80,000 DWT, also hit $10,000 after rising roughly 20% over the past week or so. Transportation demand for the grain carriers has soared due to fruitful harvests in Argentina and Brazil.

While falling Chinese steel prices were expected to lead to a drop in freight prices, rates for large ships have kept steady. "Bullishness among vessel owners due to increasing cargo is evident" in the market, and "high prices will continue for a while," says Tramp Data Service.

(Nikkei)

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