The Baltic Dry Index, which gauges the cost of shipping commodities including iron ore, cement, grain, coal and fertilizer, was down 2.20% at 577 points, the lowest since August 1986. Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, the index is also seen as an efficient economic indicator of future economic growth and production.
It plunged by more than 90% in just a few months in 2008 as the global crisis unrolled. Then, it was an impressive bellwether for the global situation. Shipping costs were previously very expensive because demand was strong and massive new ships can’t be built overnight. As the demand disappeared, the Baltic Dry dived. It’s now dropped by more than 60% in less than three months.
The Baltic Dry Index or BDI is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides “an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers.
“The dry bulk market has seemingly gone dead silent, with worries circulating among many owners that there is little reason to operate vessels under the currently prevailing freight rates,” George Lazaridis, head of market research and asset valuations at Allied Shipbroking, said in research note published on Monday.
Brokers said the dry bulk market was expected remain in the doldrums due to weak commodity demand at present especially from top global importer China. “Dry bulk remains under pressure across all segments on the back of very thin spot demand,” Omar Nokta of Clarkson Capital Markets, said.
China, the world’s biggest buyer of of coal and iron ore, will increase imports of the two commodities by 6 percent this year, down from a growth rate of 8.7 percent in 2014, according to estimates from Clarkson Plc, the world’s largest ship-broker. The nation’s economic expansion this year will be the slowest since 1990, the average of 67 economists’ forecasts compiled by Bloomberg shows. “China is slowing down, that’s why,” Marc Pauchet, an analyst at Braemar ACM, a ship broker in London, said of demand for Capesize ships, the biggest tracked by the Baltic Exchange. “The cargoes are simply not there.”