The Baltic Dry Index is charging higher, and just notched its largest weekly gain this year.
What’s impressive about the rally in dry bulk shipping rates is that it has happened against the backdrop of growing supply of dry bulk ships coming online.
Thanks to stimulus, both directly on the part of the Chinese government through infrastructure spending, and indirectly through ultra-low U.S. interest rates, China has been able to maintain a voracious demand for commodities, primarily iron ore which it must import massive quantities of. Ship congestion at Chinese, Australian, and Brazilian ports has exacerbated a tight supply of bulk vessels as well.
Still, the dry bulk fleet could grow 30% by the end of 2010, and stronger economies, higher dry bulk profitability, and recovering credit markets mean that more of these ships under construction are likely to be delivered on time.
While the times are good, dry bulk ships owned by companies such as Dry Ships (DRYS) or Eagle Bulk (EGLE) are hugely cash flow positive right now and a recent affirmation of government stimulus by the Asia Pacific Economic Cooperation forum was surely greeted with smiles. Just be aware that this index can turn on a dime, especially if the Chinese construction boom hits an abrupt slow-down.