Negative sentiments cause sharp fall in indices

VIPUL VERMA

NEW DELHI: Fears of monetary tightening in China following fast paced rising inflation, took

its toll on Baltic Freight Indices, which slumped during the week on pessimism over demand

outlook from China.

Although China has recently demonstrated strong growth both domestically and in foreign trade, the Chinese economy is overheating fast and more efforts would be required to contain it. More prudent monetary policy in China has once again raised reserve requirements for banks during the week, which spurred pessimism about further tightening later during the month. This was an indication for Baltic Freight Indices, which witnessed a sharp fall over the week.

Baltic Exchange’s main sea freight index fell below the 2,000 point level on Friday with slower activity on smaller Panamaxes weighing on sentiment. The index fell 1.43 per cent, or 29 points, to 1,999 points in a ninth successive drop and was at its lowest since August 5 when it last fell below 2,000 points.

Strong demand for thermal coal helped the Capesize rates, which broadly stabilised during the week rose 0.52 per cent on Friday, with average earnings inching higher

to USD 25,003. However, the Panamax index was the big looser plunging more than 13.2 per cent over the week, while on Friday Baltic’s Panamax index fell 5.12 per cent with average daily

earnings falling to USD 16,281. The Supramax index fell 1.77 per cent on Friday. Overall it was a bad week for freight indices with rates plunging on fears of slowing down of demand. Other reasons contributing to fall in freight indices were sluggish iron ore demand from China, higher availability of vessels and lower chartering activity.

Going forward, the rates are likely to remain under pressure as ratings gave an emphatic thumbs-down on Friday to Europe’s efforts to resolve a debt crisis, slashing Ireland’s credit rating as EU leaders took no new action to prevent market turmoil spreading. This is likely to raise concerns over the status of global economic recovery. Since inflationary pressure is also mounting scepticism will remain high over level of economic recovery. In the immediate term, there could be some rebound during the week though there may not be a rally. Moreover technical pointers are also indicating oversold state of the freight rates and are indicating

recovery going forward.

Overall the downward phase in freight rates is still not over despite rates in technically oversold

zone. This week issues related to possible hike in interest rates in China and news from debt crisis ridden European nations will be watched closely for more cues.