Baltic dry index up 50% in 4 weeks

China , Commodities , Iron ore , Transportation Sep 10, 2013 No Comments

Baltic dry index chartThe Baltic Dry Index, a benchmark of commodity shipping rates, jumped 9.3 percent to 1,478 on Monday, the biggest gain since June 2009, according to the Baltic Exchange, the London-based publisher of freight rates on more than 50 trade routes.

The measure is now at the highest since January 2012, after collapsing from as high as 11,793 in 2008 because of a record shipbuilding program.

The surge in the Baltic Dry Index has primarily been tied to day rates for Capesize Ships and the increase in demand for Iron Ore.

Australia’s Port Hedland, which handles about a fifth of the global seaborne market for iron ore, handled 22.3 million tons in August, up 9 percent from 20.4 million tons in July, and 33 percent higher than in August 2012. The majority of the exports have been for Chinese ports, however shipments to South Korea also increased and shipments to Japan remain strong.

Baltic dry index chart

Of the freight rates tracked by Baltex, those for Capesize ships provide the best insight into the health of the Chinese economy.

Capesize vessels can haul roughly 160,000–180,000 tonnes and are the dominant vessels for the world’s 1.1 billion tonnes seaborne iron ore trade. Iron ore represents over 20% of the global dry bulk trade.

China‘s imports of iron ore in August were 69 million tonnes, up 11% from a year earlier and within sight of July’s all time record of 73 million tonnes.

Although analysts have projected a slowdown in Chinese growth, China is continuing to import in order to replenish supply. Additionally, due to a supply surplus, as mentioned in our July article Iron ore giants “race to the bottom” despite fear of supply glut, the price of iron ore is expected to fall to the point where importing Australian ore will be cheaper than using domestic ore.

In the next few months US grain harvests will help to sustain these gains as grain exports sustain and increase the demand for dry bulk shippers.

Daily earnings for iron-ore carrying Capesizes, rose 17 percent to $25,426, the highest since December 2011, according to the Baltic Exchange. Twenty-six of the vessels were booked last week, up from 16 the week before, according to Morgan Stanley. Spot bookings in the last three months rose 27 percent from a year earlier while the fleet expanded 5.5 percent.

While the gains for Capesizes are certainly impressive considering daily rates have recovered from below $4,000 in June 2012, it is still a far cry from the height of boom. Capesize rates topped out at an eye-watering $234,000 in June 2008.

And under 1,500 the Baltic Dry Index may have doubled from its 2008 lows, but we’re still nowhere near the May 2008 record of 11,790.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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