Baltic Dry Index Finally Sees Some Upside

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The Baltic Dry Index finally turned higher on Monday but after its recent collapse, adding a modest 7 points to reach 1001 points. The key shipping measure has been on a downside trajectory since early April when it peaked at 1,296 points, just slightly below its fall peak.

After an early spring rally the BDI has now given up a big chunk of its gains and has appreciated just 3.4% this year, but it is 57% higher than it was one year ago. The recent downside has come as cargoes have thinned while the glut of ships has meant a great deal of competition for the cargoes which has left shippers willing to slash rates.

All of the BDI’s component ships have gone through bouts of weakness in the recent sell-off. Right now; however, the capesize has steadied and declining hire rates for smaller ships are contributing pressure. The capesize index’s stability seems to be largely technical. Right before the index turned higher on Friday Freight Investors Services noted that capesize ships were entering a support level. The recent sell-off has prompted concerns that we are in a longer-term bear market but according to FIS we are in a “corrective phase” not a bearish trending market.

Seaborne trade appears to be in a bit of a lull right now. While shipping activity does slow in the summer, the recent pullback has come early in the season. Looking later in the year, to the fall season which can see another uptick in demand there is hope that China’s crackdown on the production of raw materials to curb pollution will result in increased seaborne trade. However; with infrastructure spending expected to slow around the same time, the BDI could be vulnerable to further downside. There is more pressure, still, from recent indications that ship scrapping rates are slowing.

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Source: Economic Calendar

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