Baltic Dry Index indicating grim growth outlook and bond rally


The Baltic Dry Index, a measure of commodity shipping costs, is often used as an indicator of global demand, and it has a pretty good relationship with government bond markets too as we’ve discussed previously. The index has received much publicity over the past few years since it very accurately flagged the carnage of Q4 2008.  One of the index’s attractions is that unlike financial markets, it’s not subject to speculation (although of course shipping rates are influenced by their own set of demand and supply factors).

Today the index fell to 1495 points, which is the lowest since April 2009, and the trend is fairly firmly downwards.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Discuss Article

  1. Nils says:

    Hi,

    could this further decline be due to additional shipping capacity (ordered pre-crisis) entering the market? In this case, the BDI's decline would be less suitable for tracking worldwide economic activity.

    Regards,

    Nils

    Posted on: 10/01/11 | 12:00 am
  2. Edward Painter says:

    Posted on: 10/01/11 | 12:00 am
  3. Anonymous says:

    http://www.zerohedge.com/article/baltic-dry-and-growth-trade

    Suggested explanations for why the index might be falling so dramatically.

    Posted on: 10/01/11 | 12:00 am
  4. Anonymous says:

    Todays Bloomberg has a comment on this index pointing out the fall may partially be due to a large influx of new ship capacity.

    Posted on: 10/01/11 | 12:00 am
  5. John McD. says:

    Wonder how much effect the Queensland floods have on the index, considering that coal exports have been severely affected for the last 3 weeks.  Could take a month or two for QLD to recover, let alone what happened in Toowoomba last night.

    Posted on: 10/01/11 | 12:00 am
  6. Dave says:

    The huge increase in available tonnage might also explain the weakness of the Baltic Dry Index

    https://www.zerohedge.com/article/35-miles-capesize-vessels-leaving-shipyards-2011-guarantee-low-bdiy-long-time

    Posted on: 11/01/11 | 12:00 am
  7. Anonymous says:

    In this instance it seems to be a supply factor … from Bloomberg:

    While Clarkson Plc, the world’s biggest shipbroker, expects seaborne trade in the two cargoes to exceed 2 billion metric tons for the first time this year, the 7 percent increase won’t be enough to eliminate a glut. About 200 capesizes, spanning some 35 miles end-to-end, will leave shipyards this year, expanding the fleet by 18 percent, the Bloomberg survey showed.

    “The market was able to take a punch in the face in the form of 200 capesizes and loads of smaller vessels last year but I doubt it will manage another punch without having to hit the deck,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo.

    Full article at http://www.bloomberg.com/news/2011-01-10/freight-rates-poised-to-tumble-as-35-mile-line-of-ships-passes-coal-demand.html

    Posted on: 11/01/11 | 12:00 am
  8. Anonymous says:

    So what happened after Nov'09 to seemingly reverse the correlation between the US 10year yields and the Balitc Dry index?

    Posted on: 12/01/11 | 12:00 am
  9. Mike Riddell says:

    The Baltic Dry Index is affected by demand and supply, where a fall in shipping rates is reflecting either a drying up of demand, a glut of supply, or both. There’s little doubt that the floods in Australia are having at least some effect on shipping rates. The honest answer is that I don’t know to what extent this is the case though, and nobody really does. But what I do know from browsing the web to see what people were saying in July and August 2008 is that many analysts thought that the collapse in the Baltic Dry Index in summer 2008 would prove temporary, and was largely down to Chinese factories shutting down ahead of the Beijing Olympics.

    Posted on: 04/03/11 | 1:05 pm
  10. john slater says:

    I respond to Jim Leaviss’ invitation to suggest a topic for discussion.

    It seems to me that both this and the previous Government are doing their best to wreck pension arrangements that citizens have invested in over the last 40 years. Cf Gordon Browns raid etc and Cameron removing of the requirement to buy an annuity at 75 year of age but at a cost of reducing the 120% GAD to 100% to those under 75.

    Here is the point.  If Bond Vigilantes had a blank piece of paper what would you create now as the perfect pension vehicle for the next 40 years (assume nothing exists at present)?

    john Slater

    Posted on: 05/03/11 | 11:07 am
  11. Jim Leaviss says:

    I actually don’t think governments have much choice about “wrecking” pension arrangements which date from an era of much, much shorter life expectancy and put unmanageable burdens onto future generations (already burdened with high youth unemployment and university tuition fees). I guess the choice is to a) default against the promises made to your population, or b) default on global bond markets. Governments have taken the view that a) is the least costly exercise in the long term, and I think they are probably right.

    As for devising the perfect pension vehicle, that’s somewhat beyond my area of expertise. Encouraging your children to learn to speak Manadarin, Hindi, Portuguese or Russian might ensure them a more prosperous retirement than otherwise however.

    Posted on: 08/03/11 | 9:15 am

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