Baltic Dry Index Ends Longest Losing Streak In 15 Years
No, you're not seeing things, the poor old feeble Baltic Dry Index broke a run of 35 days of straight declines by closing a modest 20 points higher at 1720 on Friday.
It's still almost 60% down from as recently as 26th May, mind.
Large bulk carriers, the so-called Capesize and Panamax* vessels of the type that ship iron ore into China, have reportedly seen rates fall from USD48,000 a day to charter in late May to around USD18,000 a day now. That mirrors the dramatic slump in the BDI, equating to a decline of 62.5%.
It's all about supply and demand say analysts. Effectively, there are too many boats chasing too few cargoes.
The Chinese government's measures to cool rapidly rising property prices has seen demand for steel in China fall by 17% since mid-April.
Meanwhile the global fleet increased by 23% in the first half of 2010 as new vessels ordered at the height of the boom in late 2007 and early 2008 arrive onto the market.
Reports suggest that 20-25 of these new big bulk carriers are arriving onto the market every month, creating a significant oversupply.
* Pananmax vessels are the largest ships that can still squeeze through the Panama Canal. Capesize are too big for the Panama or Suez Canals and must navigate around the Cape of Good Hope or Cape Horn.
BDI Down Again
The poor old Baltic Cry Index closed another 81 points lower last night, crashing to 1709, a nice round 2500 points lower than it's recent May 26th high of 4209.
That equates to a near 60% drop in little more than six weeks.
It seems to me that it's days as a leading global economic indicator might be over. Things aren't really THAT bad surely? More like an indicator of an oversupply of ships than anything else.
BDI RIP
The poor old Baltic Dry Index was at it again yesterday, slumping below the 2000 mark to close at 1940.
It's now fallen for 30 or more straight sessions, I'm losing count, and more than 50% since late May.
One of the reasons being citing for this spectacular decline is more ships coming onto the market that were ordered at the height of the boom. Given that they take two to three years to build, many of these vessels are only now starting to come on stream now.
A rapid slump in demand for iron ore from China is also another factor.
It's interesting to note that in Egypt's Russian wheat purchase earlier in the week was at USD183.50 plus USD14.75/tonne freight. In it's previous purchase little more than a week earlier freight quotes from Russia in a similar tender were around USD24-25/tonne.
Baltic Dry Index Down Again
The BDI closed down 35 points at 2447 yesterday, it's 24th straight day of declines. A collapse in Chinese demand for iron ore is what many analysts are saying is behind the rapid demise of the BDI, which was as high as 4074 at the beginning of the month.
Iron ore makes steel, and demand for that has suddenly fallen off a cliff following the Chinese government's decision to cap rapidly rising real estate prices. The global recession has also hit demand for steel from the likes of automotive and appliance manufacturers.
Some pundits are now predicting the BDI to fall to around 2000 by the end of the year, as the global bulk fleet expands as shipping companies take delivery of new vessels that they delayed at the height of the credit crisis.
Cheaper freight levels out the global playing field somewhat, enabling the UK and EU wheat to more easily make inroads into unlikely far-flung destinations. The BDI was below 1000 back in January 2009 when Frontier loaded UK feed wheat in Southampton destined for China.
So a falling freight market might not be entirely bad news for everybody, especially for those with a weak currency like the euro. It should also make imported feed raw materials cheaper too.
The Freight Market
The Baltic Dry Index fell to close at 2482 yesterday, the 23rd straight day of declines, and marking a drop of more than 40% since late May.
Analysts estimate that 90 percent of the world's traded goods by volume are transported by sea, which is why the BDI is normally regarded as a good barometer for the overall health of the global economy.
One of the reasons behind the fall is the Chinese government's recent moves to curb property speculation, which has dampened their demand for steel. That's a disappointment for those hoping that China’s growth is going to get the world out of the economic mess it is trying to extricate itself from.
Of course the BDI is also heavily influenced by the volume of Chinese exports, not just imports. Their government's recent decision to allow the yuan to appreciate, could harm those export prospects, especially to places like Europe with the acute euro weakness we are currently witnessing.
Reports suggest that there are also lots of shiny new ships set to enter the freight market in the second half of 2010 and 2011, which could see the BDI decline further.
The last time the BDI was this low was around September/October 2009, when it briefly fell below 2200 points. CBOT soybeans, corn and wheat all posted seasonal lows around the same time.
Freight Rates Slump
The recent sharp drop in freight rates continued yesterday with the Baltic Dry Index falling to close at 3020 points. That's a 28% slump since as recently as May 26th.
A slowdown in Chinese iron ore demand is being blamed for the weakness. A three day public holiday in China this week has kept interest to a minimum, brokers report.
A reduction in Chinese demand for coal and soybeans is also behind a fall in rates from the US Gulf, they added.
The 2010 low for the BDI was 2566 set in February.
Freight Rates Jump
The Baltic Dry Index closed at 4209 yesterday, marking a 25% rise since the beginning of May and setting it's highest levels since November. The BDI has now risen 11% in the past four days alone.
Analysts say that the rise is fed by emerging economies, who are responsible for the majority of dry bulk cargo demand. These haven't been hit as badly by the recession as other regions, they say.
Even European commodities demand has remained stable despite the economic crisis, whilst steel demand from the US and Japan remains robust.
The BDI fell as low as 663 early December 2008, a fall of almost 95% from it's pre-crash high of 11,793 set in May that year.
Baltic Dry Index Scales New Heights
The Baltic Dry Index - the benchmark guide to drybulk shipping rates on 40 routes across the world - is up almost 6% at 4643 today, it's fifteenth day of straight increases.
The index has now risen 115% in less than two months, from a low of just 2163 set as recently as September 24th 2009, and now stands at it's highest level since September 2008.
You can follow the Baltic Dry Index using Nogger's widget on the right under the heading Interactive Charts.
Baltic Dry Index Almost Doubles In Less Than Two Months
The Baltic Dry Index - the benchmark guide to drybulk shipping rates on 40 routes across the world - is up 2.8% at 4230 today, it's thirteenth day of straight increases.
The index has now risen an astonishing 95% in less than two months, from a low of just 2163 set as recently as September 24th. We are still however, a very long way from the index's all-time high of 11,793 set in May 2008.
Strong Chinese demand for iron ore and coal, growing port congestion in China and Australia and tight ship availability have helped drive a rally in recent days.
While iron ore has been the primary driver of the index’s growth, coal is expected to kick in during the coming weeks as China and east Asia faces up to an unseasonably early winter with most of northern China reporting temperatures in minus territory for much of the last week. Free heating in China’s northern regions started yesterday.
Baltic Dry Jumps More Than 50 Percent In A Week
The Baltic Dry Index closed almost 10% higher Friday at 1,642. The index, the benchmark for freight costs for dry bulk commodities such as iron ore, coal and grains, has now jumped 53.5% in a week.
The index is now at it's highest level in four months and almost 150% up on it's December low of 663.
A renewed Chinese appetite for iron ore is being cited as one of the main factors behind this sudden rapid increase, together with a correction from an overdone move to the downside, shipbrokers say.
Shipowners Still Licking Wounds Despite Rally In Baltic Dry Index
The Baltic Dry Index closed at 908 Thursday, well above Decembers low of 666. Even so that is still 92% down from its all-time record high of 11,793 points set in late May 2008.
The index, which measures costs for shipping dry bulk commodities such as coal, iron ore, steel and grains is still trying to find its correct level, weighed down by a credit squeeze and waning demand for global trade.
Conditions may become clearer when China, the world's biggest importer of iron ore, completes price negotiations with suppliers for its new annual contract beginning February, some analysts say.
Others are not so optimistic. Last week, Great Eastern Shipping Co. Ltd, India's biggest private ocean carrier, cancelled orders for two new mid-sized dry bulk carriers it had placed with China's Cosco Shipyard Group.
The firm said it had cancelled the orders "with a view to reducing risk in the current highly uncertain business environment."
State-run Shipping Corp. of India Ltd (SCI), India's biggest shipping firm, has most recently laid up one more of its dry bulk carriers, the 12-year-old Maharashtra, that was due for dry docking and special survey. In December, SCI had laid up the 23-year-old dry bulk ship Lok Maheshwari, which was also due for dry docking and special survey.
Baltic Dry Index Through The Floor
Every working day, the Baltic Exchange asks brokers around the world on how much it would cost to book various cargoes of raw materials on various routes—150,000 tons of iron ore going from Australia to China or 150,000 tons of coal from South Africa to Japan. Brokers are also asked to consider variables such as the type and speed of the ship and the length of the voyage. Based on the answers, a number is arrived at which represents the shipping costs. Take a bow the Baltic Dry Index.
The BDI was 11,793 on 21st May this year. Yesterday it was 815, posting an incredible decline of 93 percent.
Put simply, the cost of shipping has dropped through the floor. Sending a tonne of iron ore from Brazil to China in early June would have set you back more than $100per tonne, or around $15m per voyage. To book the same trip today would cost only slightly over $10 per tonne, or just $1.5m for the 70-90 day journey.
As if that wasn't dramatic enough, the drop in daily charter rates is even sharper. At the peak of the market, a 170,000-tonne Capesize bulk carrier was hired out at the eye-watering daily rate of $234,000. At the beginning of this week, it was $5,611 - a fall of nearly 98 per cent.
There are main two problems:
Producers are stuck with huge inventories. Post the collapse of commodity prices, no one is in hurry to build inventories. Also, with production cuts and factory shut downs, existing inventories have become a huge issue.
The credit crisis. No one wants to lend in current market environment. As a result, Letters of credit are not getting issued. They are required to load cargoes for departure at ports.
"You are getting very, very close to the cost of just crewing and running a ship. It can't go much lower than this without owners deciding they don't want their ships employed," said one London-based shipbroker.
