The Baltic Dry Index, fell to 974 (20th straight fall session) down
49% from its peak last year and slumping 43% in the last month only.
This indicator is the daily
average of prices to ship raw bulk materials and doesn't allow / build in any
speculation, and coupled with Power & Coal rates , a far better
indicator of the health of the world economy than Oil prices. Oil prices
can easily be influenced by geo-political factors.
A scan on potential factors causing the fall, reveal an entire range of factors ...from
economic at one end to supply side issues at the other. The following possible
reasons emerge -
- Chinese
demand for iron-ore cargoes is slowing - elevated inventories, reduced steel production & weakest expansion of economy in 2.5 years in the last quarter
- Delayed infra projects & restricted finance ...China trying to slow the heat of the economy
- Sluggishness in
view of approaching Chinese New Year holidays (Jan 22 – Jan 28 )
- Developed
economies esp. Europe not growing - decline in imports, low
demand for coal
- Worsening glut of
vessels on faster deliveries of new ships.- Vessel delivery went up 12% compared to 8 rise in Trade (Maersk)
- Weather / rain
related disruptions of export shipments from Australia, Brazil (Iron Ore),
Colombia and Indonesia (coal)
Charter rates
dropped for all four vessel types within the gauge, led by capesizes.
Capesizes – $7.793
a day, 76% down from last month’s high of $32,889 ( 40% of global fleet of
commodity carriers ) Panamaxes - the
largest ships to navigate the Panama Canal, dropped to a 33-mth low of $9,257. Supramax - fell to $9,695 a day,
the lowest level since Feb. 6, 2009. Handysizes - the
smallest ships in the index, retreated to $7,581.
Capesize rents on
some routes fell below operating costs, estimated at $7,437 a day excluding
fuel. The rate to hire a capesize for a round trip in the Pacific Ocean slid
9.2 percent to $5,336 a day, and the equivalent cost in the Atlantic declined
15 percent to $6,795.
Future Expectations -
Growing ship supply, which is outpacing commodity demand, is set to cap dry
bulk freight rate gains in the coming months, projected the BDI will remain
"very low" at between 1,000 and 1,500 points for 2012. Next year will
remain another challenging year for the industry
Flip side - "A
decline in the BDI normally indicates a similar decrease in commodity prices.
As a result, we should expect exporters to enjoy lower raw material costs, and
should help the beleaguered industry.
Reliability - Recently
its reliability has been called to question. When it surged to a record high in '08 the S&P 500
actually began to decline about six months before the BDI, making it a lagging
indicator of the stock market. It did, however, signal that the global economy
was in deep trouble as it tanked 94 per cent in 2008. The BDI also rebounded
slightly before the stock market rising nearly 250 per cent before stocks
finally bottomed out on March 9, 2009.
Since then, though, the BDI has meandered at levels about 80 per cent
below its pre-crisis peak, providing few glimpses into the state of the
economy. One theory is that shipping prices are suffering not through a
lack of trade, but through a glut of large ships.
In other words, the Baltic Dry Index is flashing red – but no one really
knows what that means, and fewer people seem to care.
Maybe our troubles are so big that this is one indicator we know will
flash red while we focus on the fiscal health of Europe , Chinese slow down,
worry wether US is recovering and the budgets wouldn't be struck in the
congress or where is the next Friday , the 13th Downgrade coming and hitting...our
plates are indeed quite FULL !!!!
Credits - various sources chiefly Economic times, Reuters, Bangkok Post, The Business Times, The Globe & Mail, Canada, Graph Credits - BIG
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