China may be seeking to stockpile iron ore for its steelmaking sector

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(LONDON) The Baltic Dry Index, a measure of shipping costs for commodities, rose to the highest in more than four months on demand for iron ore and a lack of available vessels in the Atlantic region.

Shortage of ships: Gains in the Baltic Dry Index were led by so-called capesize vessels that carry loads of as much as 170,000 tons of coal and iron ore

The index, which tracks transport costs on international trade routes, advanced 83 points, or 0.9 per cent, to 9,356 points, according to the Baltic Exchange in London. That's the highest since Dec 20.

There's 'a shortage' of so-called capesize vessels in the Atlantic, Oslo-based shipbroker and research company Fearnleys AS said in its weekly newsletter.

'Although the Pacific market was less hectic, major ore charters continued to take' carriers and cut the supply of ships to collect Brazilian cargoes.

China, the world's biggest iron-ore consumer, may be seeking to stockpile the steelmaking material, Philippe van den Abeele, London-based managing director of Castalia Fund Management (UK) Ltd, said on Tuesday.

Gains in the Baltic Dry Index were led by so-called capesize vessels that carry loads of as much as 170,000 tons of coal and iron ore.

Handysize ships capable of hauling 50,000 metric tons also gained.

Coal derivatives, financial instruments used to bet on future prices, rose. Coal for delivery to Amsterdam, Rotterdam or Antwerp with settlement next year advanced 0.7 per cent to US$135.75 a metric ton by 4.31 pm in London, according to GFI Group Inc.

The contract is influenced by freight rates that can account for as much as half the price of delivered coal. GFI has about 30 per cent of trade in coal derivatives.

Meanwhile, the cost of shipping Middle East crude to Asia, the world's busiest route for supertankers, is likely to decline after rising for 15 days as holidays in Asia and Europe cut demand and most bookings for next month have been concluded.

Trading was less than normal yesterday as centres including Norway, Greece and Singapore were closed for public holidays.

'The holidays today through Monday suggest activity will not be great before next week,' Imarex NOS ASA, an Oslo-based freight-derivatives broker, said in an e-mailed note to clients on Wednesday.

There could be a 'small but manageable' oversupply when demand for June starts next week, it said.

PTT Pcl, Thailand's biggest energy company, hired the vessel Asian Progress 4 for 187.5 Worldscale points, according to a report from Paris-based shipbroker Barry Rogliano Salles on Wednesday.

That's 3.4 per cent above the London-based Baltic Exchange's comparable assessment of 181.25 points for a cargo to Singapore.

Worldscale points are a percentage of a nominal rate, or flat rate, for more than 320,000 specific routes. Flat rates for every voyage, quoted in US dollars a ton, are revised annually by the Worldscale Association in London to reflect changing fuel costs, port tariffs and exchange rates. Each flat-rate assessment gives owners and oil companies a starting point for negotiating hire rates without having to calculate the value of each deal from scratch.

At 181.25 Worldscale points, owners of double-hulled very large crude carriers, or VLCCs, can earn about US$138,700 a day on a 25-day round trip from Saudi Arabia to Singapore, based on a formula by RS Platou, an Oslo-based shipbroker, and Bloomberg marine fuel prices.

The benchmark price of shipping oil, based on cargoes to Japan from the Middle East, climbed to 180.16 points on Tuesday.

Freight derivatives betting what the index will average next month may advance because they are too far below the physical cost of hiring ships, Imarex NOS broker Justin King said in an e-mailed note on Wednesday.

May contracts were trading at 139 Worldscale points as at 1 pm Oslo time on Wednesday, implying that ship-hire rates will fall by 23 per cent next month.

Frontline Ltd, the world's biggest VLCC operator, said on Feb 15 that it needs US$31,400 a day to break even on each of its supertankers.

Bookings for VLCCs sailing from the Middle East to Asia account for 47 per cent of global demand for the carriers, according to New York-based McQuilling Brokerage Partners LLP.

Shipments to the US and the Caribbean, the second-biggest market, account for 14 per cent of demand for supertankers. -- Bloomberg