Tags: baltic | dry | soars

Baltic Dry Index Soars, But So What?

Friday, 15 May 2009 04:31 PM

By Gene J. Koprowski

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The Baltic Dry Index (BDI), which tracks worldwide, international shipping prices of an array of dry bulk cargoes, closed above 2300 for the first time since October 10, reaching a seven-month high yesterday of 2332.

Consider an early barometer of recovery, the BDI is watched closely by some economists and traders.

During the last 10 days, the BDI has increased by 560 points, up 32 percent, over the last 25 days the index has increased by 869 points, up 59 percent.

Yet cargo movement still hasn't picked up in many major ports around the world. Ships are still piled up in Asian ports, waiting for loads to move. Only a few years ago, they waited in line to unload and investors were talking about making bigger ships.

The Investors Chronicle has some insight into why this is happening.

February to April reported the largest ever amount of iron imported by China, including more than 50 million tons last month.

That has largely powered the rise in the BDI, with shippers reporting brisk activity on the Australia to China route.

Chinese buying activity indicates a large-scale restocking, buoyed by a spot ore price that is at its lowest in four years. The most recent cost, insurance and freight (CIF) price for iron ore is $80 per ton, down 40 percent from last year, according to The Investors Chronicle.

Brazilian iron-ore producer Vale indicates contracts with medium-sized steel mills, presumably state-owned, were the driving force behind the pick-up in sales in the quarter.

Meanwhile, according to The New York Times, a flotilla of cargo ships — some up to 300,000 tons – remain in port in Malaysia and Singapore, waiting for orders.

The AIS Live ship tracking service of Lloyd’s Register-Fairplay in Redhill, Britain indicates there may be as many as 735 ships without work. Shipping lanes are becoming crowded, and near-misses and collisions are a real concern along one of the world’s most congested waterways, the straits that separate Malaysia and Singapore from Indonesia.

The deep slump in global trade was confirmed by trade statistics announced on Tuesday.

China said that its exports plunged 22.6 percent in April from a year earlier. The Philippines said that exports in March were down 30.9 percent from a year ago.

The U.S. announced this week that its exports had dropped 2.4 percent in March.

“The March 2009 trade data reiterates the current challenges in our global economy,” said Ron Kirk, the United States trade representative.

Other trade experts tell The Times that despite a Wall Street rally and slower job losses, the current level of trade does not suggest an economic recovery soon.

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