The Baltic Dry Index continued its anticipated late fall retreat on Monday, shedding 20 points to touch 926. Last Friday, the BDI fell below 1000 points. In November, the BDI climbed to a two-year high of 1257 points amid seasonal restocking.
While the BDI has fallen significantly since reaching a two-year apex in November, this is being chalked up to seasonality with shipping brokers cautiously optimistic for 2017. While the recovery is seen as fragile, market participants do not expect the BDI to collapse. This is the first time in years they have seen some positivity for the Baltic Dry Index.
Shipping activity tends to decline with winter with a run-up in activity typical both before and after the season. This run-up of activity is exactly what caused the BDI’s November temporary peak. Now, activity is expected to be weak through to the end of China’s Lunar New Year Holiday. The holiday will conclude at the end of January.
This year, the BDI fell to an all-time low of 290 points in February but then rebounded over the year as demand to ship raw materials improved. Most of this increased demand came from China. While at the beginning of 2016 the outlook for the country’s economic growth was worrisome, the government embarked on stimulus programs, which included infrastructure development, and that increased the need for the country to import raw materials. That was a positive factor for the BDI.
The country’s infrastructure spending should continue for at least the first half of the year, and that will support the BDI. While it may retreat in the second half, the country’s economy is not expected to collapse. Still, the BDI is expected to remain pressured by the oversupply of ships.
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Source: Economic Calendar