The Baltic Dry Index, a measure of costs to ship dry-bulk commodities, fell to the lowest monthly average in more than 25 years as a glut of vessels weighed on freight rates.

The index averaged 701 in February, the lowest level since August 1986, according to the London-based Baltic Exchange. Today it climbed for a fifth session.

Hire costs for two of the 29 routes assessed by the exchange reached the lowest monthly averages on record in February, its figures show. New ships on order at yards equate to 32 percent of the current fleet of Capesize vessels, the largest dry-bulk carriers, and 37 percent of all Panamaxes, according to London-based shipbroker Howe Robinson.

“This represents a massive supply-side challenge,” Anastassis Margaronis, president of Diana Shipping Inc., said yesterday on a conference call. “The newbuilding order book continues to be a major concern for dry-bulk shipping.”

Daily rents for Capesizes and Panamaxes on so-called backhaul routes were below zero all month, the exchange’s figures show, meaning vessel owners were paying charterers to hire ships by subsidizing their fuel costs. The routes are used to reposition ships from the Pacific Ocean region to the Atlantic basin.

Growth Outpaces Demand

The global fleet of more than 9,000 dry-bulk vessels will expand by 17 percent this year, Howe Robinson estimates, more than double its forecast for a 7.3 percent gain in demand for seaborne raw materials. Hire costs will only recover late next year even if the number of older ships removed from the market were to double in 2012, according to its projections.

Scrapping of dry-bulk ships may double this year to 50 million deadweight tons because of the plunge in rates, according to Howe Robinson. Any recovery also depends on a slowdown in orders at shipbuilders to curb supply, the broker said in a report.

Orders for dry-bulk carriers came to 24 in the first two months of 2012, down from 128 a year earlier, according to Clarkson Plc, the world’s largest shipbroker. Owners placed record numbers of orders in 2007 and 2008, when returns exceeded $200,000 a day for the largest vessels.

The dry-bulk index rose 1.6 percent to 750 today as charter costs for Handysizes, the smallest ships it tracks, increased the most in more than two years. The gauge averaged 1,549 in 2011, a nine-year low. It will average 1,500 this year, Nomura Equity Research said in a report dated Feb. 20.

Daily average Capesize charter costs climbed 0.5 percent to $6,010. The vessels comprise about 40 percent of the dry-bulk fleet by capacity.

Panamaxes, the largest ships to navigate the Panama Canal, were little changed at $6,684 and Supramaxes that are about 25 percent smaller gained 2.8 percent to $7,443. Handysizes rose 3.3 percent, the most since November 2009, to $6,306.