The Baltic Dry Index — which is just an index of shipping rates — has a lore about it for being a really good economic indicator.
But in reality, it’s not much of an indicator of anything beyond… shipping rates. And that’s because it’s idiosyncratic, moving on its own micro economic factors.
Case in point: Right now the BDI is at its highs of the year!
Here’s Lazard Capital on the closely-related Baltic Cape Index:
Dry Bulk: Capesize rates are profitable for now but do not expect such to
be lasting. The Baltic Cape Index continues to hit new highs for the calendar
year with rates at ~$27,000/day on average on the back of firm Chinese
demand for iron ore and steady demand for coal supported by stabilizing
commodity prices, moderating Chinese domestic inflation and steady domestic
demand despite some overall slowing in export demand. As well, the Cape
fleet has been experiencing record scrapping this year. Still, the fleet remains
markedly oversupplied and this condition should exist well in to 2012. We
have been expecting moderate spikes in Cape rates and we feel this current
moderate spike is not the last spike that we shall see over the next 12 months
(today’s rates are still well below the $40,000/day average rates we say for
Capes in October 2010). Given that there will likely be spikes in freight rates
despite a slow GDP growth regime globally, the dry bulk market is not nearly
as out of balance as the bears would suggest.
Anyway, one other reason we point this out now is that we frequently hear about the BDI when it’s down and stocks are up. People don’t bring attention to it as much when it’s up and stocks are down.
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