The cost of shipping commodities fell to a
record, amid signs that Chinese demand growth for iron ore and coal is slowing,
hurting the industry’s biggest source of cargoes. The Baltic Dry Index, a
measure of shipping rates for everything from coal to ore to grains, fell to
under 300 points in the second week of Feb. It has been hitting historical lows
almost every day from Jan 2016 however it has had a very marginal rise to about
300 points over the last few days. This
is as per the data from the London-based Baltic Exchange going back to 1985.
Among the principal causes of ship owners’ pain is slowing economic growth in
China, which is translating into weakening demand for overall commodities in
China imported iron ore that is used to make the steel.
In fact the Baltic dry index is down about 98
percent from its peak of 11,793 points in May 2008.
Last week the overall index, which gauges the
cost of shipping resources including iron ore, cement, grain, coal and
fertiliser, fell to a historical low to 290 points before it rose to 300 points
in the last couple of days. The dry bulk market is expected to remain under
pressure for long because of weak demand for commodities, particularly from top
global importer China.
The capesize index fell to almost 208 points.
Average daily earnings for capesizes, which typically transport 150,000-tonne
cargoes such as iron ore and coal, is presently $2,776 per day.
The panamax index was at 301 points. Average
daily earnings for panamaxes are now $2,417 per day. The supramax index
was down around 250 points, while the handysize index slipped to 186 points.
Admittedly, tracking this index is a dry
subject for many people (the clue is in the title). Maybe that’s why it
receives so little attention in the mainstream press. Either way, it’s a very
important measuring stick as the BDI tracks the rise or fall of freight rates
of dry bulk. Since freight will rise with increased volumes it can be argued
that essentially this is a measure of the fluctuation of worldwide trade in
commodities. It hence gives a very good idea of whether world trade is
expanding or contracting which helps economists take a macro view.
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