Thursday, June 17, 2010

Baltic Dry Index Continues To Plunge! Are You Worried About the Possible Implications?

The Baltic Dry Index has closed down again. If you are counting, that should be 14consecutive days of losses. And mind you, the losses are steep losses.

So what are the possible causes?

Ok, the over supply of the ship is one big issues. A simple supply and demand issue. When there are more supply of ships than actual demand of it, the shipping rates will come down.

But the biggest concern is the slowdown in China's imports.

Yes, as we are all aware, last year, China purchased a lot of raw commodity. Some called it stock piling but exactly a year ago, Andy Xie Called It Speculative Inventory And NOT Commodity Stockpiling!

Whatever the reason, perhaps China is finally using what it had purchased excessively previously and this could be the reason for the current slowdown in China imports. As highlighted in the posting Plunging Baltic Dry Index Reflects The Slowing China Commodity Demand
  • Imports of crude oil, refined fuel, copper, iron ore and rubber all slumped compared with April, giving little evidence of Chinese export strength feeding through into commodity demand.
This is a worry. Is this really implying the lack of domestic demand?
  • "Most of the deals were signed in March or early April when prices were still high and buying was active, but orders have dramatically fallen in May after prices plummeted," said an iron ore trader based in Ningbo.

And now the Baltic Dry Index has continued to plunge.

Are you worried about the possible implications?

Or do you reckon that things well resume back to normal once the inventory is cycled through?