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Surging commodity prices buoy up bulk shipping

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Bulk carrier vessel
Bulk carrier vessel

Freight shipping costs have soared to the highest level in more than a decade as the commodities boom buoys the maritime sector.

The Baltic Dry Index, a benchmark which tracks average shipping costs for dry bulk goods such as iron ore and timber, hit 3,240 on Tuesday, more than double its level two months ago.

Prices are rising sharply as demand for raw materials surges due to massive infrastructure spending in China and the West.

Capesize freighters, the largest dry bulk ships which can measure more than 1,000ft and carry unto 400,000 tonnes, are charging $42,000 a day.

Rates have been pushed up by the soaring price of iron ore – a key component in steel production – which hit $236 a tonne this week.

Chinese steel mills – the world’s largest producers, with a combined output of more than 1bn tonnes last year - are snapping up the commodity as they try to maintain production ahead of expected curbs on output intended to reduce pollution.

Copper has also hit record highs of $10,639 per ton with Goldman Sachs predicting it could rise to $11,000 this year and $14,000 by 2024.

The metal is critical in the production of motors and wiring as the world transitions to electrification. Shipping companies are benefitting from demand amid fears that miners will not be able to produce enough.

Peter Aylott, policy director of the UK Chamber of Shipping, said: “Iron ore and copper are driving shipping prices, with those minerals transiting on shipping routes to China.

“There are many other complex factors involved in the price rises, though. There’s no question there is confidence in the market about the direction economies are going in, but when container ships fill there’s also a spill over into the bulk market.

“Order books for dry bulk carriers are also low, as shipyards have been taken over by higher value ships such as containers.”

A year ago as the outbreak of Covid-19 sent shockwaves through the global economy, the Baltic Dry index plunged by around 300 points to all-time lows, sparking panic across the shipping industry.

That fear has now disappeared with bulk transport companies enjoying surging freight rates as factories in China supply a consumer spending boom in the West.

Plamen Natzkoff, senior trade expert at VesselsValue, said: “We are witnessing exceptionally strong demand for commodity-carrying vessels. The most significant driver is China’s insatiable demand for iron ore, which accounts for almost 30pc of total dry bulk commodities volume.

“The fact that so much of the major commodities are having to be transported from the Atlantic to East and South East Asia has served as a coiled spring to the freight market as the larger distances involved tie up ships for longer."

Ed Buttery, chief executive of Taylor Maritime Investments, a shipping business with “pocket-sized” bulk vessels of up to 40,000 tonnes, is also expecting to benefit from demand.

He said: “Iron ore may be grabbing the headlines but as people feel more secure demand for everything is going up, such as the foodstuffs.

“There’s global shortage of our ‘handy-size’ ships and orders for them are low, with shipyards already full up.”