Skip to comments.The Baltic Dry Index Is Collapsing
Posted on 12/21/2009 9:44:08 PM PST by blam
The Baltic Dry Index Is Collapsing
Dec. 21, 2009, 1:06 PM
Dry bulk vessel over-supply is finally taking its toll, the Baltic Dry Index (BDI) has gone into a nosedive as shown below. US-listed dry bulk stocks such as DryShips (DRYS) and Eagle Bulk (EGLE) have been drifting lower.
While the current index level is still equivalent to historically strong rates, continued strength in 2010 is entirely predicated on continued growth of Chinese dry bulk raw material imports. While November iron ore imports were encouraging and 2009 was a year of surprising strength, with China it could all disappear in an instant.
Bloomberg (Dec 11th): Iron ore imports by China, the worlds largest buyer, rose 12 percent last month as steelmakers increased production to meet demand from makers of cars and appliances. Imports of the steelmaking ingredient were 51.1 million metric tons, the customs office said on its Web site today. That compares with 45.5 million tons in October and a record 64.6 million tons in September, according to Bloomberg data.
(Excerpt) Read more at businessinsider.com ...
I've always read that these charts are very predictive of future economic activity.
Is that graph seasonally adjusted?
If not, it’s looking rather “double dip”-ish.
not = so
For those of us who dont have a clue what the Baltic Dry Index is should we be worried? As an amature stock watcher, I have never heard of this index. Of ourse, this is just a fun thing!
Too soon to tell, still above several support values.
It’s important because it’s mostly raw materials that products are made of. If manufacturers are trimming their purchases of raw materials then there’s not as much work for labor in the near future, more often than not.
It tells you what the usage rate is for ships carrying dry cargo. Great one parameter insight into future retail sales, and recent past manufacturing.
“With all the excess shipping this is showing, the government will soon begin stealing bits of the US, and shipping it overseas, perhaps as a welfare measure, requiring each ship to carry goods only half way. After all, it is for the greater good, and we have to save the shipping companies....”</sarcasm>
December 2008 Baltic Dry Goods
For lots of articles. Fleets of ships were idled. Waste paper (the stuff those Chinese goods come in) was one of our largest exports from the west coast. China was refusing to unload the ships, they had no need for paper they had contracted to buy.
Another good indicator is here:
Shipments last week were 5.8% under 2008 and 16% under 2007.Forest products (housing) and coal are the worst.
The BDI is a number issued daily by the Baltic Exchange out of London on price quotes to ship dry bulk commodities around the world.
When there’s an excess of dry bulk shipping capacity (ie, ships that hold things like grains, iron ore, aluminum ore, coal, etc) the BDI goes down because supply/demand means that there’s an oversupply of shipping capacity, which means that shipping prices come down.
Now, in this case, I think that some of the BDI movement is reflective of the movement in the US dollar. For several months, the US dollar was getting weaker, and this past month (as of the third week of November), there’s been a reversal in the US dollar vs. other currencies and gold - ie, the dollar has been getting stronger. Stronger dollar means it would cost less to ship something, which would mean that the BDI goes down.
That said, the reverse could be true here too. A weakening dollar would make the BDI look stronger than it might really be in terms of actual supply/demand for shipping.
The one useful thing about the BDI is that there are no tradeable contracts based on the BDI. It is merely a quotation of actual shipping rate quotes on a daily basis, which means that speculative trading won’t distort the BDI.
22 December 2009
As we mentioned last week the Shanghai equity markets have served as a leading indicator of U.S. stocks over the last year. While Shanghai has broken down and moved sideways over the last few months we have seen similar sideways action in the Baltic Dry Index. Not surprisingly, the fundamental correlation between Chinas export driven economy and this shipping index are high. With a 30%+ sell-off currently in process in the Baltic Dry Index we have to ask ourselves if the fundamentals in China and the global shipping industry arent weaker than many equity markets would have you believe.
Did you see they had a cyber attack?
Thanks. That's the first I've heard of that.