Sunday, October 17, 2010

Baltic Dry Index May Sustain Its Upward Push

Keep a Beady Eye on the BDI
Shipping News Feature

UK – WORLDWIDE - When it closed on Friday at 2762 the Baltic Dry Index, so valued as a freight thermometer by many analysts and investors alike had maintained its steady rise over the past couple of weeks. Overall the index has maintained this climb since plummeting to a notch above 1700 in mid July having crashed from the respectable 4200+ six weeks previous to that.

With the helter skelter performance of the rates over the past five years it is good to look back sometimes at the trends which brought us here. Many will be surprised to note that Friday’s rate is a mirror of the position last year (2728) indicating some sort of status quo but last July’s figure was in the mid 3000’s and earlier years of course tell a very different tale.

October 2006 again showed a climbing market with a figure approaching 4000, by October 2007 the Index was hitting an astonishing near 11,000 and after a precipitous fall one year later we were looking at 1400 and shrinking fast (down to the 600’s in December). Such fluctuations frighten the market but, in common with the financial fever infecting other markets those heady days seem totally illogical when viewed with objective hindsight. There will always be a time lag in this type of commodity market, one always has too many ships or too few, too much freight or too little and therefore a hard look at the current dry bulk freight situation is still a difficult call.

At the moment much of the Capesize tonnage appears to be contracted and therefore the perceived shortage of suitable ships has pumped up the rates, a few well placed phone calls by Chinese ore dealers hasn’t done any harm either apparently. With perceptions of a short term vessel shortage the rates are likely to be steady for a short while.

Long term we enter the usual sea of uncertainty, nobody wishes to talk down the market but there are liable to be more falls and rises over the next few months with a degree of uncertainty infecting the trade.Talk for the next twenty years is all positive with the Australian’s planning more rail infrastructure and port developments on the strength of what they see as an expanding market and the Chinese dragon continuing to devour all they produce.

With the Chinese currency/US dollar comparative many observers have woken up to the fact that that country’s exports will mirror the drop in prices of their US counterparts. That analysis only holds good however if the Chinese in question have money squirreled away overseas, if they pay for their import materials in Yuan then that will be devalued to the same extent and push the price of import stock, and ocean freight, up. On a small scale this would have a negligible effect but nothing that China does is on a small scale and an increase in import prices will in turn result in an increase in the finished export cost.

So to précis the situation changes are likely to be steady rather than dramatic for now. A currency revaluation, a change in the security situation, increased Indian orders or a few panicky analysts aside our guess is steady as she goes (within reason) as traders on the marine side settle down with rates lower than they’d like whilst their counterparts in the cargo supply contingent pay more than they wish.

Photo:- MV Triton courtesy of Diana Shipping