Spike in Baltic Exchange’s capsize index signals costlier coal shipments

P Manoj Mumbai | Updated on October 08, 2021

In a first in 13 years, Index sails past the 10,000 mark; widespread power bill surge seen


Coal-starved power stations received another shock as the capesize index, the main dry bulk sea freight index of The Baltic Exchange sailed past the 10,000 points mark on Wednesday, a first in more than 13 years, making the rates for shipping dry bulk commodities such as coal costlier.

Experts say that the upward trend will continue for some time. The overall index rose 4.4 per cent to 5,647 points, the highest since September 2008 when the Lehman Brothers collapse triggered a global crisis.


Demand up, ports choked

The rally in the main index was driven by a spurt in the capesize segment, which rose 7.4 per cent on Wednesday to reach 10,475 points. The capesize index has jumped 17 per cent from last week and 85 per cent since September 1 on the back of robust demand and port congestion globally.

The average earnings for capesize vessels rose $5,993 to $86,870 a day.

The cost of shipping coal from East Kalimantan in Indonesia to India’s East Coast has risen now to $16-17 a tonne from about $10 a tonne earlier.

China effect

Shipping industry sources said that the rate is expected to go up by $6-7 a tonne in the next 24 hours as China opens on Thursday after a seven-day national holiday during which shipping activity slowed.

“The epicentre of global shipping is China; when the Chinese market opens, everything else changes,” said an executive with a shipping company.

Besides, about 6-7 per cent of the world fleet is waiting outside Chinese ports making them unavailable for trading.

Rising trade in Europe and South America in the wake of the pandemic has also led to a huge demand for ships.

The many drivers

“Port congestion in China, changes in trade patterns, high Brazilian iron ore exports and demand for thermal coal are all driving the capesize market,” said Peter Sand, Chief Shipping Analyst at Copenhagen-based Baltic and International Maritime Council or BIMCO.

“The main index and capesize market will mostly have an upward trend for the rest of the year, driven by coal imports by India and China,” Sand told BusinessLine.

Can hurt economy

“The impact will be huge. Economically, it is going to hurt the country badly,” said a ship broking executive.

Indian buyers have been cautious about importing coal in the last six months due to higher prices prevailing in the global market and the rally in freight rates.

“They were importing when it was absolutely necessary. But, it has become urgent now with what’s happening at Coal India,” the shipping executive said.

“Coal buyers will have to pay higher freight rates to meet the demand because China will do anything to get coal to tide over its shortage, even paying a big premium,” he added.

Published on October 07, 2021

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