Baltic Dry Index Down 60% On Excess Shipping Capacity (BDI, CCI and Shanghai Composite Comparison)

Since my previous post on BDI vs. Copper on 1/6/2011, the Baltic Dry Index has continued its descent toward the December 2008 low. Remember the good old days? In late 2008, when the credit freeze started to thaw, the BDI bottomed first, then commodities and then the stock market. I'm not sure if the same pattern holds true today. There are a bunch of moving parts that affect freight rates. The BDI is down 60% from the November 2010 peak, and it appears to be due to excess shipping capacity (tonnage) and potentially growth concerns out of China.

"“Even given the increased demand for iron-ore from China, there is far too much (ship) tonnage available,” said Simon Penn, a strategist at UBS." (WSJ/The Source)

"The increasing amount of ballasters appearing in the Atlantic trading region from Asia are not being met with many fresh minerals or grain orders, said one broker." (Lloyds List DCN)

"Maritime sector still in distress: 37% more capacity in two years, UAE tops the orderbook" (Emirates 24/7)

Dry Bulk 2011: Working Through the Glut (TheStreet.com)

Iron-ore port inventories, new vessels coming to sea, China inflation (tightening) and Australia shipment disruptions due to floods (and now Cyclone) could all be factors as well.

"...Chinese iron ore port inventories at historically high levels standing at approximately 80.1 million tons." - Jeffries (WSJ/Market Beat)

"“The big problem for 2011 is continued deliveries of new ships,” said Scott Burk, an analyst at Oppenheimer & Co. in New York who was the most accurate forecaster of fourth-quarter capesize rates in Bloomberg’s survey in July. “It puts a damper on any upside that would occur through an increase in demand.”" (Bloomberg)

"“Inflation is starting to slow China’s mighty export machine, as buyers from Western multinational companies balk at higher prices and have cut back their planned spring shipments across the Pacific." (CNBC via PragCap.com)

Dry-Bulk Shipping Falls Toward Two-Year Low on Australian Coal (Bloomberg

UPDATE 4-Australia coal mines, ports shut ahead of cyclone (Reuters)

Korea Line, a Korean shipper just filed for bankruptcy due to the collapse in freight rates. They leased ships from ship owners*.


"Dry-Bulk Shipping Customer Files for Bankruptcy, Industry Remains Weak" (Morningstar)

"Korea Line Files for Receivership as Bulk Rates Fall" (BusinessWeek)

*"there are also concerns that, if it breaks long-term charter agreements, the ships’ owners could be forced to put the ships back on the short-term spot market." (Financial Times)

I mentioned on Twitter that the shipping industry needs to nuke these extra ships. I see it's about to happen.

"Freight rates are poised to rise after tumbling to a two-year low as owners of ships hauling coal and iron ore scrap the most vessels in at least 28 years." (deletions) (BusinessWeek)

Charts: The first chart is of the Baltic Dry Index. The second chart compares the Baltic Dry Index, CCI (commodities index) and Shanghai Composite. From March 2010, look how commodities and freight rates decoupled and Shanghai ended slightly lower. However, from November 2010 the Shanghai Composite and the BDI moved lower in tandem while commodities kept moving higher. Watch Eagle Bulk Shipping (EGLE), DryShips (DRYS), Excel Maritime (EXM) and Genco (GNK).


$BDI Baltic Dry Index (StockCharts.com)


BDI/CCI (Commodities Index)/SSEC (Shanghai Composite)



Photo credit ("Panamax Container Ship")Wikimedia Commons

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