Chinese warning
Baltic Dry Index (BDI), which grew in June 2009 to a pre-crisis level, demonstrated the decrease throughout the entire summer but has stabilized by now. Experts say, the increase in business activity may not result in new growth of the index as a lot will depend on the demand for raw materials in China which shows no signs of the tendency for growth so far.
The Index tracks worldwide international shipping prices of various dry bulk cargoes like metal, iron ore, coal and grain. BDI provides an assessment of the price of moving cargo by sea. The index is made up of an average of the Baltic Capesize, Supramax and Panamax indices. BDI dynamics allows investors and market players analyze major tendencies of the global demand and supply. BDI is often considered to be the main indicator of the future economic growth (if it increases) or recession (in case of fall) as raw materials have low potential for speculative trading.
The growth of BDI in spring 2009 brought hope to the maritime business community on fast overcoming the crisis. However, BDI started to fall again after it reached its peak level of 4,291 points on June 6, 2009 close to the level of September 2008 and stabilized at some 2,400 points for over 10 days already.
As Dmitri Baranov, leading expert of MC Finam Management, told PortNews IAA, this stabilization should be attributed to a certain balance between demand and supply in this segment of shipping. However, the expert says “further fluctuations of the Index will depend on growth/decline of the business activity in the world, first of all, in the northern hemisphere when holidays are over and the new business season starts. If the activity grows and economic situation in leading countries improves and requires more resources, freight rates including BDI may start growing”.
China is the main consumer of raw materials today. Experts say BDI growth in the spring-summer period was driven by the growth of the demand from Chinese industry. However this demand is falling now and no changes are expected in the nearest future.
As Sophia Ragulina, senior analyst of Everest Asset Management LLC, told PortNews IAA, BDI decline should be mainly attributed to reduction in Chinese import volumes (first of all, coal, iron ore and copper), commissioning of new dry cargo carriers resulting in excess of bulk tonnage and seasonal factor (BDI usually falls in August).
“Trade is likely to be more active in the forth quarter of 2009 though there is a risk of a sharp fall in the demand for raw materials in China. So the Index is not likely togrow. Speaking about possible “drawdown”, a lot will depend on China. If Chinese import continues to decrease, the Index is to change considerably,” the expert thinks.
It should be noted that in May 2008 the index reached its record high level since its introduction in 1985, reaching 11,793 points. Half a year later, on December, 5 the index dropped to 663 points, the lowest since 1986.