The Baltic Dry Index increased by 8 points on Monday, its second-straight session of gains after the index saw six consecutive losses. That string of losses followed a long winning streak for the BDI which saw it surpass its November high amid spring restocking demand for raw materials.
Right now, the BDI should remain supported by high demand for capesize ships to transport raw materials into China during peak construction season while demand for softs amid harvest season should support higher hire rates for smaller ships. However, a supply disruption in Australia is exerting pressure. A large cyclone hit Australia a few weeks ago, disrupting shipments from ports. According to Freight Investors Services, freight rates for large capesize dry cargo vessels on key Asian routes fell to multi-week lows last week, and are likely to remain depressed due to lower cargoes.
The cyclone caused massive flooding which damaged transportation capabilities and also forced mine closures. As a result, BHP Billiton declared force majeure on coal shipments. It could take a month for things to get back to normal. In the meantime, canceled shipments will mean lower cargoes and this will depress hire rates. A snap-back rally is possible when operations ramp up; however, there is the sentiment that the BDI’s value is now in a territory where resistance could hit. In order for the BDI to take another leg higher, we will likely need a pick-up in ship scrapping or an increase in demand for raw materials. Right now the sentiment is that Chinese demand for raw materials will soon taper, and that is a major negative for the BDI.
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Source: Economic Calendar
