Heady market is inherently fickle A bullish dry-bulk market is ushering renewed confidence in the sector but is also fogging up the long-term outlook. These are the headiest of times for the dry-cargo market with the Baltic Exchange Dry Index (BDI) surging to record levels and capesize operators increasingly able to negotiate rates over the $106,000-per-day mark. The background reasons for the surge are fairly well rehe*****d, although the sheer power on the demand side has taken everyone by surprise and broken down concerns that large volumes of new shipping tonnage coming onto the market would bring bad times in their wake. Certainly, this is a period of peak seasonal demand that has been compounded by port congestion in Australia, with more than 100 ships caught up on the east coast of the country because of dock and rail bottlenecks. But, as usual with recent record booms whether it be commodities or freight, China is the main driver, although the added impetus is being provided by the increasing economic strength of fast-developing India. Both countries are engaged in an exhilarating charge to modernise their economies. The pace of change in China has continued to defy all expectations that a slowdown must be just round the corner. Meanwhile, both the US and some European economies are continuing to show robustness even in the face of a housing slowdown in the US and a threat of higher interest rates in the UK. At the same time, new vessels are being brought into the market at increasing rates but are being soaked up by the demand created for cargoes such as coal. Imports of this carbon fuel to China exceeded exports for the first time in the first quarter of this year. The country imported 14.3 million tonnes, up 60% year-on-year, as it sees the building of one new coal-fired power station every four days to try to satisfy increasing growth in energy demand. This has driven other users such as Japan and South Korea into chasing longer-distance supplies from places such as Brazil. Meanwhile, demand from the steel industry is also high, with Chinese imports of iron ore soaring by almost one-quarter year-on-year to 100 million tonnes in the first three months of 2007. Steel production itself was up 20% in March alone. Virtually every commodity price including oil is at high levels and metals are all close to record highs because of the physical demand from China and a wall of speculative money that has been swishing around in this area of the global economy. Good times then for most shipping people but deep frustration for those operators who are having to wait a month or more to load at ports in Australia such as Newcastle. Maritime lawyers must be rubbing their hands in glee at the gigantic bout of demurrage cases that are going to be coming their way. Equally, there will be some who have bet the wrong way on a continuing freight boom and might find themselves in financial trouble. Last week, TradeWinds highlighted the problems of Atlas Bulk Shipping in Denmark and Source Link Shipping in China whose problems have inevitably also impacted on other companies, the latter around through counterparties in forward-freight agreements (FFAs). Some argue that the current freight-rate boom is only really being sustained by port congestion but the sheer strength of Chinese physical imports has convinced many mining houses it is worth taking increasingly long charters on bulkers. A heady market is an inherently volatile one and while it is no good blaming the Chinese for that, the Australian situation was more avoidable because the delays there partly emanate from insufficient loading capacity. As Donald McGauchie, Australian central bank board member, put so poetically, the ports had been starved of cash and "the railway system is owned by the state governments with no investment in it since Jesus was born"
