The Baltic Dry Index kept its upward momentum on Monday, continuing its rally and rising by 10.54 percent at 1815 points.
Despite analysts cautioning, the Baltic Dry Index kept its upward momentum on Monday, continuing its rally and rising by 10.54 percent at 1815 points. The Baltic Exchange"s index, which tracks the cost to carry commodities like iron ore and coal, has been on a 15-day rally, which has seen the index rebounding from the disappointing lows of the beginning of December. It is now 173.7% up from these dreadful levels, but many analysts and market observers have cautioned that this trend isn"t sustainable. Indeed, they refer to the huge orderbook of dry bulk vessels ready to enter service during 2009 and 2010 as their main argument, coupled with the state of the world"s economy, which appears to be miles away from a recovery. This will be seen once sectors like steel begin seeing an increase in demand. For the time being, the Index is propelled by the resumption of iron ore imports from China after a 20 million ton fall of stocks at the country"s ports from September levels. According to Chinica Shipbuilders Ltd., iron ore stocks at China"s ports fell 2 percent to 58.6 million tonnes by last Friday. Brokers also cited this year's bumper Australian wheat crop, the profitability of storing cheap commodities at sea and the collapse of container companies as contributory factors in the index's recovery from December's lows. Investors Chronicle highlighted that there also seasonal factors affecting demand for shipping in the northern hemisphere like for instance the fact that larger shipments of coal for power stations have been needed because of the severity of the winter weather in the UK and other European countries.
Nevertheless, this rally should be nearing an end, at least according to analysts. Despite the fact that forward shipping contracts are factoring in a greater demandd for raw materials, especially as the price of ore is forecast to fall significantly this year with China expected to get tough with the big miners on prices, the general consensus appears to be that this recent run will be shortlived. They are estimating that for the next few months the BDI will stabilize in the 2,000-3,000 points range. Also, they say that there is still a significant risk of cancellation of shipping charters this year, combined with the ongoing problem of obtaining letters of credit; apparently this has become so difficult that cargoes are being split between two smaller ships and issued with letters of credit from different financial institutions.