Baltic Dry Index Rise Indicates Good Economic Tidings 14 comments
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The Baltic Dry Index - a measure of freight rates for iron ore and bulk commodities - rose non-stop for 23 sessions until Wednesday, before declining somewhat Thursday. This surge represents a gain of 517% from its low on December 5. But one needs to put this in perspective: The Index fell by 94% from its high in May 2008, and therefore still needs to rise by a further 188% to match the previous peak.
More importantly, this rise seems to be more than a snap-back rally and points to better economic tidings. This becomes apparent when considering the close relationship between China’s Purchasing Managers Index (PMI) for New Export Orders and the Baltic Dry Index, showing both indices turning sharply higher.
Source: Plexus Asset Management (based on data from I-Net Bridge)
Also, the improvement in China’s PMI (with the composite Index back in expansionary territory above 50) and the Baltic Dry Index is consistent with the improvement in the Metals Index. (See my recent post “Secular bull in commodities remains intact“.)
Source: Plexus Asset Management (based on data from I-Net Bridge)
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ULTR is buying back there own shares till Sept 09 of about 30 million dollars worth...and in june 09 ULTR is adding 45 new barges to the 600 already working and every month is said to add that amount.They deliver commodities on the Paraguay RIVER .to paraguay ,uraguay and brazil...they also have capesize sea vessels for the ocean business and the 3rd business sector is servicing ec the brazillian oil market...they are doing business with Petrobras Brazil as well ....later 09 into mid 2010 should be very
productive for ULTR IN ALL AREAS......look at all info for ULTR
Also, just because the Chinese are taking in large amounts of commodities currently doesn't mean those commodities are being consumed... at least not yet... they are notorious for stockpiling ahead of contract negotiations with major suppliers, especially ore suppliers.
Chinese ports can and often do get clogged with ships lying at anchor waiting to offload... and they are currently quite clogged... so shippers are still getting their daily rate sitting there the same as they are when underway... thus keeping rates up high... for NOW. But what happens when the harbors clear?
There are also a lot of newbuilds coming online that were too far along in the build process to cancel or sell. When these all hit the market there will be a larger supply of ships meaning potentially lower rates as desperate owners who paid more than $150 Million for a capesize newbuild compete for contracts. There are articles recently (Lloyd's List I believe) that state that there are many idled ships right now despite the higher rates. So if a larger supply of ships causes lower rates, would one take the opposite side of the argument and say that China DEMAND is LESS, and therefore its economy may be weaker than thought, simply because rates are less? In other words, one needs to be careful in ascribing supply/demand of China to supply/demand of available ships.
Finally, the BDI fell 284 points on Friday to 3809, almost exactly a 7% drop, and this followed a nearly 5% drop of 198 points on Thursday. Take those two days together and suddenly you have a 482 point drop - 11% - not chump change. What does that say for world economic prospects? What are the FFA's saying (shipping's equivalent of futures contracts)?
The point being, one must look at many other factors when attempting to correlate BDI to potential economic growth - for China, for the US, for the world. Yes, we have come a long way off the collapse lows, but we would still need a tripling in rates to get back to the bubble highs of May, 2008, and that is simply fairy tale land today.
I believe that BDI rates will probably trend lower this summer as the world awaits more definite confirmation that some kind of sustainable economic recovery is underway.
And, I would add, going forward, the BDI be of less value if China should decide to bring in raw materials by means other than the sea. Longer-term, the index will be distorted by an expansion of fleet capacity.
Another interesting point, is that very frequently forward freight agreements trade at a discount to current freight rates, suggesting the market believes the current flurry of activity will subside.
While I agree with your paras 1 and 3, #2 leaves me a bit puzzled. What other means are you suggesting for the importation of bulk commodities? Air freight would be much too expensive (if we're talking bulk commodities), and my understanding is that China's rail system is one of the areas targeted as a part of their infrastructure "stimulus".
and the quantity of bulkers coming on line over the next 18 months will further distort any reading of this index for purposes as an economic marker.
i am alarmed the the bdi is trending down now that bunkering costs have just gone ballistic.
On Jun 07 05:20 PM Alphameister wrote:
The comments above represent more of the knee-jerk bearishness so prevalent on SA. While commenters are not willing to credit as a trend a straight-up advance of more than 500%, they are oh-so-willing to jump on an 11% pullback as a trend. Up more than 120% from the lows thanks largely to my China stocks and betting on PRGN now in the shipping sector.
China IS trying to improve overland trade links. From memory:
- New roads to SE Asia have been completed recently (via Laos if I remember correctly).
- There's an initiative to reopen the Stillwell Road to India.
- There rail route from Singapore to Bangkok is supposed to be extended up to Kunming, linking into the Chinese rail system, by 2011.
Just how much capacity these routes will have I don't know. But they'll certainly offer much shorter shipping distances for trade between China, South & South-East Asia.
"very frequently forward freight agreements trade at a discount to current freight rates..."
Is this information publicly available?
I can't speak for the other "bears" as you accuse anyone who isn't a permabull, but my DUE DILIGENCE and keeping an open mind got me out of the bulker trade last Spring, and the things that I mentioned up above were the reasons why. SO I've missed a knee jerk rally in the bulkers? Big deal... DRYS at 116 May 2008, 7 something this past Friday. EXM, TBSI "only" down 85% in the past 15 months even after their magnificent rallies.
A lot of permabulls are bragging about the fantastic % gains they've made since March 9... evidently they didn't lose anything last year, so this is all just profit for them... how about you Alphamaster.. how'd the investment results go for you LAST YEAR? Up 120% again?
LOL.
On Jun 07 05:20 PM Alphameister wrote:
> The BDI is indeed a harbinger of better economic times for shippers
> and for China especially. The BDI does a great job of heralding
> new bull markets even though the correlation wanes significantly
> beyond important turning points. The comments above represent more
> of the knee-jerk bearishness so prevalent on SA. While commenters
> are not willing to credit as a trend a straight-up advance of more
> than 500%, they are oh-so-willing to jump on an 11% pullback as a
> trend. Up more than 120% from the lows thanks largely to my China
> stocks and betting on PRGN now in the shipping sector.
It is time to wake up!
bdi ned 163 pkt!
Baltic Exchange Dry Index 3646 DOWN 163
BCI Baltic Exchange Capesize Index 6523 DOWN 289
BPI Baltic Exchange Panamax Index 3027 DOWN 225
BSI Baltic Exchange Supramax Index 1804 DOWN 28
BHSI Baltic Exchange Handysize Index 873 DOWN 7
And there are news items coming out today that China and its steel makers are accepting a 33% - 37% CUT in iron ore prices with major ore producers... that's INFLATIONARY?
www.theaustralian.news...
and that there is a huge supply overhang in copper as China has been stockpiling at the recent very low prices seen since late 2008... copper stocks up 51% last week:
www.mineweb.com/minewe...
I'm not smelling inflationary excesses building in news items like this... what I'm seeing is China being China but getting pushback in a deflationary environment.