The Baltic Dry Index turned higher on Wednesday after weeks of losses as the physical markets for BDI component ships finally found some stable footing.
According to Freight Investors Services, on Wednesday, capesize rates were largely unchanged in the physical market but the paper market viewed the stability after the recent, steep losses as a positive and the paper market ended up trading higher. The physical panamax market was range-bound, but the paper market garnered some upside support, tracking the capesize index higher. The supramax and panamax paper markets were also firmer.
While on Wednesday the BDI did break a long losing streak, the upside was limited with the index adding only 3 points to reach 821. There is little reason to expect any significant upside for the BDI for the next few months. The best case scenario would be for the BDI to trade sideways during the summer when shipping demand retreats.
Over the summer, the only demand-side signals that the BDI will find are bearish ones. The only positive influence on the BDI over this period would come from supply, namely; if ship scrapping rates pick-up or if newbuilds decrease. However; so far this year the developments on these fronts have not been price supportive. Newbuilds have been increasing while at the same time scrapping rates are decreasing compared to the prior year.
The BDI has been plagued with an oversupply of ships since a bunch new boats that were already in construction when the economy collapsed were brought into service. Even though demand for seaborne trade has improved as the economy recovered, with too many boats competing for cargoes, the BDI is still well below its all-time high of 11,000 points. Before the BDI has any hope of a significant recovery, the supply of ships has to decrease.
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Source: Economic Calendar