Saturday, July 03, 2010

Baltic Dry Index Continues To Plunge

Posted last week: Time To Panic? BDI Down Over 40% In 20 Days!

The BDI has closed much lower since.

At 2280, the index has lost 1929 pooints since hitting the high of 4209 on 26th May 2010.

And the reasonings are still very much the same.

  • “In the dry bulk segment, China contributes 30% of the total trade. Japan has also curbed its imports. To add to this is the European crisis, which has led to a decline in shipment of dry bulk, thus impacting BDI to slip to this unit,” said an official with the largest shipping company in India.
  • “We do not see a recovery in the charter rates for at least six months from now. There is a lot of pressure from the supply side (availability of ships). Unless we see some order cancellations or an ease in supply pressure, charter rates won’t improve,” said Param Desai, an analyst with Angel Broking. source: here

  • The Baltic Dry Index is sharply down. This has little to do with overall shipping trends, but is due to a sharp slump in Chinese imports on which global shipping depends
  • The shipping index has dropped significantly due to the slowdown in iron ore imports. “A fall in the Capesize Index has almost an equivalent effect on the BDI. The Capesize Index generally caters to iron ore demand, which is currently weak. There is excess steel capacity, therefore, China will now need to stabilise and not continue steel production like it has been producing in the past two months. It will either look at lowering its utilisation or shut-downs. This has caused a fall in iron ore demand, affecting the Capesize Index and the BDI in turn,” said Shraddha Shroff, research analyst, KR Choksey.
  • “In addition to the current global steel production scenario, China has also scrapped its rebate policy on imports. This in turn has made Chinese steel lose its low-cost advantage. There is no significant cost-competitiveness left. China’s cap on real-estate prices has also depressed the country’s steel demand from the real-estate segment,” said Ms Shroff. The Chinese government, in one of its measures to curb inflation, is trying to curb real-estate prices. ( hmmm.. this is a 'new' reasoning given!)
    At present, China has an excess of steel inventory. It is expected to slow down its steel production further, leading to lower iron ore imports by the world’s largest steel producer. It has already banned Chinese traders importing low-grade coal, in order to arrest the rise in steel prices. Baosteel Group Corp, the nation’s second-biggest mill, was quoted in an international daily, saying that steelmakers in China may cut output next quarter, because of “weak” demand from auto and appliance makers. ( source:
    here )