The BDI has plunged since the start of China’s Lunar New Year holiday as demand to ship raw materials into the world’s largest commodities consumer has dried up. The BDI fell to 800 points on Tuesday after shedding 16 points. While the BDI’s recent daily losses have been small, it has been on a downward trajectory since January 19, and the small daily losses have added up to a fairly significant loss. The BDI was at 952 points prior to this losing streak.
The national holidays in China and Singapore have meant a dramatic drop-off in physical shipping demand while paper demand has also evaporated. Ahead of the holidays, the BDI saw some support and once the holidays conclude there is an expectation for an uptick in demand. In China, the Lunar New Year holiday runs through February 2, but some factories will be shut for even longer.
The BDI saw some support ahead of the holidays from the usual restocking of raw materials such as iron ore, but an increase in demand for grains provided an additional boost. According to Platts, Freight rates for front-haul grain voyages from the Atlantic increased ahead of the holiday in China in anticipation of the upcoming, new Brazilian soybean crop. This grain shipping demand is expected to accelerate when the holiday concludes, but there is one major caution. The higher freight rates and demand for grains are already attracting more ships to serve the market. An increase in ships could prevent this new demand from having any lasting, tangible impacts on freight rates.
While the grain market may not provide a significant impact on freight rates, optimism remains over demand for iron ore. China is still actively developing its infrastructure and will need to replenish its stockpiles of iron ore after the holiday’s conclusion. Also, winter demand for thermal coal could provide more upside support.
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Source: Economic Calendar News, DryShips Inc.
