Thursday, June 24, 2010

Time To Panic? BDI Down Over 40% In 20 Days!

Time to panic? The Baltic Dry Index is down again.

And if you are counting, that's 20 day of consecutive losses.

Most recent high was 4209 and that was on 26th May 2010. The Index has lost a whopping 1694 points and that would be about 40% of its high recorded on 26th May 2010.

Some are suggesting that this now is a non issue as massive swings in the index seems to be a norm. Yeah, last month I wrote Baltic Dry Index Recovers An Impressive 45% And Offers A Ray Of Hope To The Greek Economy

And as mentioned earlier in the posting Plunging Baltic Dry Index Reflects The Slowing China Commodity Demand:

  • I am aware the possibility that one of causes of the steep decline could be caused by the surge in the supply of vessels but what I am concerned about is the slowdown of China's purchase of commodities

This latest news clip from BusinessWeek confirms my double whammy suspicion.

Commodity Shipping Extends Longest Drop in 14 Months on Surplus

  • June 23 (Bloomberg) -- Commodity shipping costs measured by the Baltic Dry Index extended their longest losing streak in 14 months because of an expanding surplus of vessels and declining Chinese imports of iron ore and coal.

    Growth in China, the world’s biggest consumer of both commodities, will slow to 10.5 percent this quarter and 9.6 percent in the following three months, compared with 11.9 percent in the first quarter, according to the median forecast of 21 economists surveyed by Bloomberg. The nation’s coal and iron-ore imports fell in April and May, customs data show.

    Shipping lines were counting on expanding demand to bolster business for new vessels joining the fleet. The global fleet of capesizes, which haul 170,000 metric-ton cargoes of iron ore and coal, was at 1,031 at the start of June, up from 950 in January, according to Arctic Securities ASA.
    That may reach 1,150 by the fourth quarter, Arctic estimates.

    “There’s been a constant increasing pace of deliveries and China’s iron-ore imports have cooled down,” said Martin Sommerseth Jaer, an analyst at Arctic in Oslo who has followed shipping for six years. “The market is being hit from two sides. You have the supply side which is killing you and you have a break in demand.” .............

And the recent move by Beijing to scrap export tax rebate on steel and metal products isn't helping much either.

On WSJ: Asian Shares End Mostly Down; Tax Move Hits China Steelmakers

  • .... Chinese steelmakers came under selling pressure after the Ministry of Finance said Tuesday it would scrap an export tax rebate on a variety of commodities, including steel and non-ferrous goods.
    "The cancellation of the export tax rebate effectively raises the export tax on these products, hurting the prospects of the metal firms, but the impact would be capped as companies start to limit volume growth," said Wang Junqing, an analyst from Guosen Securities.
    Baoshan Iron & Steel Co. dropped 2.7% in Shanghai, while Angang Steel Co. shares fell 2.4% in Shenzhen and 3.3% in Hong Kong.....

And I guess this will hurt the importation of iron core from China, which in turn would hurt the shipping industry too.


solomon said...

The purchase contract had now changed from annual basis to quarterly. With the increase supply of ships, this will cause erratic spike and dip in Baltic index.

Let see month of Aug, the reading spike up, this will confirm my observation is right or flaw.

Moolah said...

I guess the article did not do the panic on you. LOL. :p

It's down ... another day but this time the decline is rather smallish. :p


Moolah said...

And the BDI... is not down.

Finally. :P

Moolah said...

Spoke too soon! BDI closed at 2447.