Freight rates for shipping tankers and bulk carriers have seen a reverse trend in the last three weeks, as the approaching winter increases the demand for crude carriers while the rising inventory of iron ore in China dampens the requirement for the vessels it is carried by.
The Baltic Dirty Tanker Index a benchmark for the freight rate of crude carriers rose by 20% in three weeks to 565 on Friday.
Mr KS Nair director of bulk carrier and tanker segment at the Shipping Corporation of India said that “It is only the winter effect that has helped the tanker rates move up. Freight rates are not expected to have surprises in the next one year.”
According to Mr Nair, bulk carriers can handle their operational cost at the 4,000 to 4,500 index level and running at the current freight rate is tough. He added that it is the high inventory of iron ore in China that has affected the freight rate for the bulk carriers.
Mr Yudhishthir Khatau MD of Varun Shipping said that “For tankers, depending on the routes, some players are able to recover the operational cost even at these levels. But it is too early to say whether it is cyclical effect of approaching winter or it is headed for a long-term recovery.”
Consumption of oil in western countries increases in winter on account of the heating requirements and usually this period sees an uptake in demand for tankers. However Mr Jehangir Adi Master a shipping industry analyst with ICICI Securities said that “Freight rates are set for gradual recovery.”
He estimates the Baltic Dry Index to rise by 20% by the end of the current year as economies have been recovering globally and demand picking up. He added that “Tanker rates may also rise by 20% to 25% by the end of the year.”
(Sourced from Business Standards)
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