The Baltic Dry Index Has Exploded Higher And The Silence From The Bears Is Deafening

The Business Insider ^ | 8-23-2010 | Vincent Fernando, CFA

[blam]

The Baltic Dry Index Has Exploded Higher And The Silence From The Bears Is Deafening

Vincent Fernando, CFA
Aug. 23, 2010, 10:27 AM

Earlier this year when the Baltic Dry Index (BDI), a measure of shipping rates for dry bulk commodities, was plummeting, many were to quick to point out that this 'signaled' an end to the global recovery, even though the Baltic Dry Index is lousy, if not completely useless, as a leading indicator for the global economy.

Yet now the index has rebounded extremely hard over the span of just two weeks... and the silence from the bears who earlier touted the BDI as 'evidence' is deafening:

So what's going on? Let's step back to July 27th, which you'll note is the first date shown on the chart above.

The Money Game, July 27th:

Iron ore forwards have had an extremely strong week, according to data from the Iron Ore & Steel Derivatives Association. August 2010 forwards have had the largest gains, indicating expectations of a near-term rebound:

Despite concerns about Chinese demand growth, higher stockpiles of steel, a global growth slow-down, and Chinese plans to consolidate its steel industry into fewer players, iron ore and steel are rallying.

Where there's demand for steel, there's demand for many other commodities as well. There's also demand for ships. This, combined with a stabilized Baltic Dry Index and today's overall stock market rally, means it's a sea of green for dry bulk stocks today.

August & September could get interesting for the commodities space.

The bullishness shown in the derivatives market has proven correct, and China has begun increasing its imports of iron ore once again. In addition, an Indian iron ore export ban has forced Asian

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[SaxxonWoods]

The chart is much more instructive than the writer. The BDI looks to be range bound, and the range has been moving between terrible and lousy for about a year.

[Senator_Blutarski]

I think part of what is going on is Wheat being sent TO Russia (because of their poor harvest) is increasing the bid rate for shipping.

The Russian grain crop problem was my first thought as well. I'm not so sure this is a general trend. It may be a reaction to a specific crop failure.

[kittymyrib]

China continues to grow its economy. Russia has to import wheat to survive. How do these events portend economic growth in the USA for anyone but our wheat farmers?

[bert]

I looked but could not find a similar report on container shipping volume/demand

Do you know of such?

My little business’s volume is a function of container shipping. So Far, it looks like August ‘10 is the worst month in 15 years and that includes the month it began.

[Uncle Ike]

” I looked but could not find a similar report on container shipping volume/demand “

I would imagine that your “boots-on-the-ground” experience is a more accurage measurement than any ‘bent/folded/stapled/mutilated’ Government ‘report’...

[Uncle Ike]

” accurage “

Should be ‘accurate’...

[Paine in the Neck]

"Exloded" upwards? Yeah, it's about 70% of what it was a few months ago and only 25% of it's pre-crash high in '08.

[Jack Hydrazine]

That’s why I don’t have a TV!

[WaterBoard]

The BDI is a little misleading.

Yes, the index is up, but that is because the number ships that have now been mothballed and in storage has caused an increased demand for ships still operating.

Ghostship creek: The fleet of huge ships mothballed by the recession on a Cornish river that has become an unlikely tourist attraction

http://www.dailymail.co.uk/news/article-1304280/Fleet-mothballed-ships-Cornish-river-unlikely-tourist-attraction.html

[Alberta's Child]

I believe the Russian government's decision to suspend grain exports in order to protect their crop for domestic consumption (the combination of drought and wildfires has resulted in a very poor harvest in Russia this year) is driving up demand in Asia for North American grain.

I may be wrong about this, but I believe this is one of the biggest factor influencing dry bulk shipping right now.

[blam]

"Do you know of such?"

I've seen one posted on FR before but I don't know what it was.

[Jack Hydrazine]

Thanks for that little tidbit that puts the numbers into proper perspective.

[bert]

Here's an even longer perspective

[Jack Hydrazine]

So the BDI is at the 2003 level.

[bert]

Apparently yes. Notice the rapid, near vertical rise.

Guess what? The rise is very close to the April 2003 announcement of the Bush tax cuts.

[sbMKE]

Grains are plentiful in one part of the world and in short supply in others - Russia for one.

http://www.greatlakes-seawaynews.com/great-lakes-and-saint-lawrence/2010/8/19/reasonable-ocean-freight-rates-may-help-seaway-fill-grain-ma.html

[sbMKE]

http://www.greatlakes-seawaynews.com/great-lakes-and-saint-lawrence/2010/8/13/great-lakes-ports-benefit-as-us-wheat-becomes-a-hot-commodit.html

[DManA]

Wildly speculating here - but can we trust Putin when he says their grain harvest is smoked? Are there independent assessments available?

[Jack Hydrazine]

Are those the same tax cuts that will sunset at the end of this year? If so, watch that BDI drop vertically.

[bert]

Interesting isn’t it.

Yes, I’m pretty sure they are the same tax cuts