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Dry Baltic Index

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July 14, 2010 – Comments (6)

I saw a cliff diving note about the Baltic index, so I did a search and found some charts on it.

I haven't looked into the reasons the index has declined so much again, but the reasons for its collapse previously was about being able to move money between countries.  Credit completely dried up for this industry.

Anyone following this?  

6 Comments – Post Your Own

#1) On July 14, 2010 at 7:23 PM, brickcityman (< 20) wrote:

I follow somewhat... and another issue often cited is excess capacity (or a bad mix of capacity) coupled with alot of new capacity being added based on shipbuilding contracts that were signed years back.

 

 

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#2) On July 14, 2010 at 8:55 PM, silverminer (31.08) wrote:

Massive volatility is simply the name of the game for the BDI. A month ago, I was writing about the index's 40% surge.

http://www.fool.com/investing/international/2010/05/26/smooth-sailing-for-the-queen-of-dry-bulk.aspx

Meanwhile, just as the equity markets began to crest, and it seemed nothing was on the rise, the Baltic Dry Index (BDI) -- an index of prevailing dry bulk charter rates -- initiated a huge surge that has yielded a 40% increase in charter rates just during the past month. Now, given the disruptive oversupply of vessels, I don't view the BDI as the reliable economic indicator it's customarily interpreted to be. However, it's certainly a welcome sign for shippers that spot rates are showing significant strength. It's possible to infer, furthermore, that perhaps Asian demand for commodities has not ebbed to the extent that recent declines in the region's stock markets might suggest.

 

In any event, the persistent oversupply of vessels and the overhang of pending new vessel contructions renders the index an unreliable bellwether indicator under the circumstances.

http://www.fool.com/investing/general/2010/07/14/csx-floats-upon-frictionless-rails.aspx

An oversupply of vessels has rendered the Baltic Dry Index a less effective macroeconomic indicator for the time being. Similarly, I submit that the migration of increasing transportation market share from the roads to the rails, especially in this elevated-oil-price environment, renders railroad haulage metrics a far less straightforward indicator of economic vitality than they might otherwise be.

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#3) On July 14, 2010 at 9:28 PM, blesto (32.05) wrote:

I tend to agree with Christopher.

Here's an article Of Why The Baltic Dry Index Is A Useless Leading Economic Indicator

"The other thing is that the BDI is a measure of spot rates for dry bulk commodities consumers who, generally, are in the near term forced to pay whatever it takes to get their raw materials shipped (A steel plant needs to keep operating despite some higher ore transportation cost). On the flipside, vessel owners are in a similar boat (no pun intended), and in the near term are generally forced to take whatever rate they can get to fill their ships. (A ship sitting around is just a cost, ie. fixed costs are high, thus using a ship at a loss is usually better than not using it at all)"

That makes some sense to me.

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#4) On July 15, 2010 at 7:24 AM, aussiereader4 (< 20) wrote:

Here is the another possible explanation

 'July 12 (Bloomberg) -- The spot price of iron ore delivered to China, the world’s biggest buyer of the steelmaking ingredient, slumped to its lowest level this year as steel production in the Asian nation slows.

The cost of 62 percent iron ore delivered to the port of Tianjin dropped for a 15th consecutive day, declining 3 percent to $118.10 a metric ton, according to The Steel Index. That’s the lowest since Dec. 29. The price has tumbled 37 percent since reaching a high for the year of $186.50 a ton on April 21.

Chinese iron ore buyers have been absent from the spot market for almost a month and are shunning purchases amid speculation of lower prices, Goldman Sachs JBWere Pty analysts said in a report dated July 9. The steel market, the biggest iron ore user, has weakened, Liu Guosheng, vice chairman of China’s Baosteel Group Corp., said in Shanghai last week.

Vale SA, Rio Tinto Group and BHP Billiton Ltd. are the biggest exporters of iron ore, making up about two-thirds of seaborne supply. This year they moved away from a 40-year custom of pricing supplies annually by signing quarterly contracts based on the average cash or spot price over three months.

Steel output in China dropped last month and is likely to fall again this month, Goldman Sachs JBWere said in its report. China is the world’s biggest steel producer.'

I agree with all the responses above, however the issue of a possible slump in demand cannot be ignored.

 

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#5) On July 15, 2010 at 9:13 AM, silverminer (31.08) wrote:

aussiereader, Certainly, the slump in Chinese imports is a major contributing factor to BDI ... the problem lies in being able to reliably extract that factor from the oversupply condition to draw meaningful interpretations from movements in the BDI without resorting to guesswork.

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#6) On July 15, 2010 at 4:21 PM, EnigmaDude (94.27) wrote:

Warning - cliff diving into the Dry Baltic can be hazardous to one's health!

But seriously, if you want to do some research into shipping stocks, check out the Capital Link Shipping site.  It includes the latest DryBulk index (their version of the BDI) as well as other shipping related indexes, latest industry news, etc.

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