The Baltic Exchange's main sea freight index, which tracks shipping rates for dry commodities, has fallen to its lowest level in over 14 months. It's a sign that weak Chinese demand has put the brakes on cargo activities.
The index gauges the cost of shipping commodities, including iron ore, cement, grain, coal and fertilizer. It fell 3.25 percent to 1-thousand 8-hundred and 40 points - its lowest level since May 1st last year.
Experts say a combination of slower iron ore activity, weaker coal imports into China, easing port congestion and the end of the South American grain export season, have weighed on freight rates in recent weeks.
Liu Bin, Director of World Economy Research Inst. of Dalian Martime University said "If China steps up its iron ore imports, then the Baltic Index is likely to rise. But if China slows down on iron ore imports, then the gauge will drop."
Figures show that China's iron ore import has maintained a downward trend for three consecutive months. In June, China imported over 470 million tons of iron ore, a drop of around 15 percent compared with May.
Many small-scale Chinese steel makers halted their iron ore imports months ago. With at least six months' supply of iron ore stockpiled at many ports in China, experts say there won't be large-scale iron ore imports in the near future.
Fluctuation of the Baltic Index in the next six months will largely depend on China's market demand. Some experts warn the plunge of the sea freight index could trigger another wave of pessimism towards the world economic recovery.