Dry bulk freight rates for large ships, which have been volatile in the past few months, are likely to weaken later this year as new vessels enter the market, the International Grains Council said.

The seaborne sector which ships commodities including grains and iron ore around the world has been struggling to absorb the growing pace of vessel deliveries even though commodities demand picked up thanks to signs of recovery in the global economy.

Rates in the capesize sector rebounded in May on increased chartering demand from China and Japan after hitting six-month lows in April as China reduced its mineral imports and more ships were looking for cargoes, IGC said in a contribution to a key food situation report by the U.N's Food and Agriculture Organisation (www.fao.org).

Freight rate fluctuations add volatility to prices of agricultural commodities shipped around the world.

"There were indications that freight rates for larger ships could weaken later this year due to the arrival of newly built ships and conversions from obsolete single-hull tankers into dry bulk carriers," IGC said.

Analysts and industry experts have forecast ship oversupply would hit dry bulk freight rates.

The capesize fleet is expected to grow by nearly 40 percent this year, despite new order cancellations and a high rate of old ship demolition, with about 75 million tonnes deadweight of new tonnage seen entering the market in 2010, IGC said.

In May, rates for capesize and smaller panamax vessels rose on the back of renewed demand for minerals and fertilisers, tightened tonnage supply in the North Atlantic and rising bunker fuel prices, it said. (Reuters)