Baltic index at 5-week low, ore buying dives

By Jonathan Saul
LONDON, Sept 22 (Reuters) - The Baltic Exchange's main sea freight index .BADI, which tracks rates to ship dry commodities, fell to its lowest in over five weeks on Wednesday as weak iron ore activity took its toll on the market.
The index, which gauges the cost of shipping commodities including iron ore, cement, grain, coal and fertiliser, fell 2.97 percent, or 76 points, to 2,486 points, dropping for an eighth straight session and was at its lowest since Aug. 13. The index has dropped 17 percent since the recent move lower.
"Chartering activity on the capesize market has been relatively quiet and we are entering the holiday period in China," said Derek Langston, a director with SSY Consultancy.
"With such rapid fleet growth there are not sufficient new iron ore cargoes entering the market to lift freight rates."
Shippers continue to look for signs that the Chinese government will call on more steel mills to cut output further, which could reduce iron ore imports and pressure the dry bulk market. Spot iron ore prices have slipped with market sentiment staying weak on uncertainty over when demand will take off.
The Baltic's main index has been erratic this year, as it was in 2009, because of swings in Chinese demand for iron ore, the primary ingredient of steel.
"Bulk carriers are becoming less attractive to charterers as fewer cargoes need to be shipped in the short-term," broker Lorentzen & Stemoco said.
The capesize market has seen volatile activity in recent weeks. A rally in August was driven by Chinese iron ore imports from Australia and Brazil on capesizes after Karnataka, India's second-largest ore producing state, banned exports from 10 of its ports in July.
The Baltic's capesize index .BACI fell 4.31 percent, with average capesize earnings falling to $28,840, and below the $30,000 a day level for the first time since August. Capesizes typically haul 150,000-tonne cargoes such as iron ore and coal.
The Baltic's panamax index .BPNI fell 1.94 percent on Wednesday, with average daily earnings falling to $22,696, while the supramax index .BASI fell 1.17 percent.
Brokers said there were hopes that firmer U.S. grains export activity, helped by a Russian grain export ban, would provide support to the smaller ships later this year.
Analysts said freight rates would be dampened this year by the pace at which new ships are set to enter the market this year and next, despite indications of some vessel cancellations and delays.
SSY said 150 capesize vessels had entered the fleet so far this year compared with 112 for the whole of 2009. A further 10 ships had been converted from tankers into capes this year compared with 31 conversions for the whole of 2009, it added.
"This puts net fleet growth for 2010 on target for 71 to 72 million deadweight tonnes (dwt) compared with 38 million dwt in 2009 and 27 million dwt in 2008," SSY's Langston said.
The rise in fleet growth this year has not been matched by commodity demand.
"Further freight rate increases should still be limited in the coming months by the strong fleet growth," Societe Generale said.
(Editing by Alison Birrane)