Baltic index stays weak, capesize ships pressured:

* Capesize scrapping at record high

* Panamax market driving gains

LONDON, (Reuters) - The Baltic Exchange's main sea freight index.BADI, which tracks rates to ship dry commodities, fell for a fourth day on Thursday as freight activity stayed slow.

Brokers said cargo volume was being driven by the smaller panamax bulkers.

The overall index fell 0.42 percent or 6 points to 1,428 points. Prior to this week's drop, the index was flat on Friday and rose for 10 sessions before that.

February floods and cyclones in Australia hit coal production, and some producers are still struggling to return to normal operations, hurting capesize activity.

"On the trade side there is still some disruption to coal supplies from Queensland," said Derek Langston, a senior director at SSY Consultancy and Research.

Langston said throughput at Gladstone, one of the Australia's biggest coal ports, reached 3.2 million tonnes in May, compared with 5 million tonnes in May last year.

"That highlights the continuing supply chain limitations even allowing for return to full throughput levels later this year," he said.

The outlook for dry bulk rates has been grim because ship supply has outpaced demand to ship commodities.

The situation has been compounded by the deployment of a vessel owned by top iron ore producer Vale (VALE5.SA: Quote) of Brazil, the first of the world's largest dry bulkers to enter the fleet.

There were also expectations India's monsoon would reduce iron ore exports as rivers rise, hampering goods transportation.

Monsoon rains were 16 percent above normal in the week to June 8, the weather office said on Thursday, suggesting the rainy season is progressing as expected. [ID:nDEL003882]

The Baltic's capesize index .BACI fell 1.89 percent, with average daily earnings falling to $9,758. Capesizes typically haul 150,000-tonne cargoes such as iron ore and coal.

"This week brought a turn in the tide for capesizes, as rates dropped across the board due to softening demand," broker Braemar Seascope said.

The Baltic's panamax index .BPNI rose 2.42 percent, with average daily earnings rising to $15,266. Earnings for panamaxes, which usually transport 60,000-70,000 tonne cargoes of coal or grains, have more than halved since the same period last year.

Brokers said coal cargoes from Australia and Indonesia to China were providing some support, although gains were capped by slower grains activity out of South America.

The Baltic's supramax index .BASI fell 1.02 percent.

Operators were watching for further signs that China's economy was slowing, given the dry freight market's dependence on Chinese imports, especially of coal and iron ore.

The index has more than halved in the past six months to near levels last seen during the financial crisis in 2008.

SSY said scrapping of large capesize vessels in the first five months of this year had hit its highest level since 1996, although growing ship supply would continue to weigh. [ID:nLDE75820N]

"The freight market is clearly facing downward pressure from the supply growth in this fleet," Langston said.

(Editing by Jane Baird)

Source: Reuters Africa. By Jonathan Saul. Thu Jun 9, 2011

http://af.reuters.com/article/energyOilNews/idAFLDE75826Z20110609