The Baltic Dry Index rises to 555 from 290 Feb. 10, but it’s still a long way from the peak of 11,793 set in May 2008
The Baltic Dry Index, the measuring stick for the cost of shipping dry cargo, has been steadily rising for the last two months.
However, the news isn’t a significant worry for exporters of grain, iron ore and coal because the index is creeping upward from its lowest level in history.
The BDI sank to 290 points Feb. 10, which was a far cry from its peak value of 11,793 set in May 2008 and even the 1,400 level set in February 2014.
As of April 11, the index had climbed from its low to reach 555 points. Market watchers have suggested the increase is a sign of a turnaround and that the cost of shipping bulk goods may return to more normal levels.
However, Peter Sand, an analyst with BIMCO, the world’s largest international shipping association, isn’t as confident.
In a tweet posted early April, Sand said the industry remains in dire straits.
“If the dry bulk market were a patient, it would be close to dead”
Global grain companies monitor the cost of shipping bulk goods and use hedging strategies to limit risk.
Freight Investor Services (FIS), a global brokerage firm that buys and sells commodity futures, also trades shipping futures and derivatives.
Martin Vera, branch manager for FIS in the United States, said the price for shipping dry bulk products picked up recently because there may be temporary “tightness” in the market.
As well, prices were likely to bounce back because they had reached ridiculously low levels, and shipping firms were bleeding money.
“Companies can’t survive. They’ll just idle their ships,” Vera said. “You expect this kind of rebound…. The question is, is there continuous demand that will keep vessels employed and produce a little more balance…. The question is whether this has real legs.”
Sand said the economics of shipping iron ore, coal and grain is not going to improve anytime soon because the rate of building new ships exceeds the number of ships being scrapped.
“We estimate 50 million DWT (dry weight tonnage) to be delivered and 40 million DWT to be scrapped,” he told Hellenic Shipping News Worldwide.
Shipbuilders built more ships from 2009-13 in response to the global boom in commodities. Shipping demand has flattened now that commodity prices have collapsed, mostly because China is importing less iron ore and other bulk goods.
“BIMCO estimates the demand for both key imported commodities, coal and iron ore, will contract in 2016,” Sand said. “As the demand side is moving forward (at) a dead-slow speed, cutting down on capacity is the only way to a significant improvement of the fundamental market balance.”
Vera is slightly more hopeful about China and prices for shipping bulk goods.
“China has reiterated that they are going to hit growth targets. That has changed sentiment a little bit. Chinese steel and ore markets have shown some strength,” he said.
“Are they going to continue to build on their infrastructure? That’s generally accepted. Are they going to start really pushing for real estate development? I don’t think so.”