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Slowdown signs - Shipping rates may fall by 50pct as China cuts imports

It is reported that just as global trade starts to recover the shipping market is crashing for the second time in a year as China reduces raw-material imports and record numbers of new vessels set sail. The rate for leasing Capesize ships, boats three times the size of the Statue of Liberty will drop about 50% from the current price of USD 37,865 a day to as low as USD 18,000 before the end of the year.

According to Fearnley Consultants A/S shipping rates, which already fell 59% from this year high are retreating as the Organization for Economic Cooperation and Development predicts a 16% drop in world trade for all of 2009. China State Council called for curbs on steel and cement production last week. A record 146 capsizes will be added this year equal to 28% of the fleet. Mr Andreas Vergottis the Hong Kong based research director at Tufton Oceanic Ltd which manages the world’s largest shipping hedge fund with USD 1 billion of assets said “The pressure of the new ships will be overwhelming. It will take a lot of time and a lot of pain before shipping recovers.”

According to Lloyd Register Fairplay the biggest ever order book for new carriers may hurt profits at shipping lines while providing higher returns for traders. Mitsui said rates for Capesizes have fluctuated more than 50% in seven of the past eight years. Mitsui OSK Lines Ltd and Nippon Yusen KK, both based in Tokyo and China Cosco Holdings Co operate the world’s biggest bulk-shipping fleets.

Nippon Yusen forecast its first full-year loss in 23 years last month, citing lower demand for container shipping and expects Capesize rates to average USD 55,000 in the six months through March 31st. Mitsui cut its full year profit estimate by 25% last month. China Cosco said on August 27th its commodity ships lost money in the H1. Estimates in the survey ranged from USD 10,000 to USD 25,000. Mr Sverre Bjorn Svenning, the analyst at Fearnley Consultants who correctly predicted last year collapse in the Baltic Dry Index which fell 92% was at the lower end.

The drop in Capesizes is consistent with the Baltic Dry Index, a gauge of the cost of carrying dry bulk commodities such as iron ore, coal and grain. The index which includes four types of vessels including Capesizes, more than tripled this year. The index is 44% off its high for the year.

Mr Svenning who is based in Oslo said “We’ve seen several yards that have delivered their first ships, albeit delayed, and we expect them to increase the pace of deliveries in the H1. We will see more next year than we see this year.”

Even at rates of USD 18,000 a day, most owners should make money, with daily operating costs estimated at USD 7,555 by London based Drewry Shipping Consultants Ltd.

A rebound in trade may also limit the tumble. The Paris based OECD said August 19th that the economies of its 30 members collectively stopped shrinking in the Q2.

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