Dry bulk shipping's Baltic Dry Index (BDI) is back on the up, just shy of breaking the 3,000 level once again.
In August and September the outlook for shipping and dry bulk shipping rates, was very poor even while the stock market surged up in September. This resulted in more articles predicting Stock market doom. But in October the rate has moved up, as world trade in the Atlantic is improving. The rate has moved up about 30%.
Dry bulk shipping's Baltic Dry Index (BDI) is back on the up, just shy of breaking the 3,000 level once again. What's striking about the rally is that Fearnleys highlights strength in the Atlantic (not pacific) as a key driver of recent strength.
The Capesize market has experienced a healthy improvement this week, mainly driven by the demand for ships in the Atlantic. One week ago the rate for a transatlantic round was slightly below $43,000 daily, against current $58,000 daily. The tonnage balance in the Atlantic remains tight, and supply of fresh cargoes is steady. The fronthaul market is up from high $25 pmt to around $30 pmt basis Tubarao/China. In the east the 3 most influential charters; BHP, Rio Tinto and FMG are all active, supporting the positive trend in rates and an optimistic sentiment.
The Baltic Dry Index (BDI) is a daily average of prices to ship raw materials. It represents the cost paid by an end customer to have a shipping company transport raw materials across seas on the Baltic Exchange, the global marketplace for brokering shipping contracts. The index is quoted every working day at 1300 London time. The Baltic Exchange is similar to the New York Merc in that it is a medium for buyers and sellers of contracts and forward agreements (futures) for delivery of dry bulk cargo. The Baltic is owned and operated by the member buyers and sellers. The exchange maintains prices on several routes for different cargoes and then publishes its own index, the BDI, as a summary of the entire dry bulk shipping market. This index can be used as an overall economic indicator as it shows where end prices are heading for items that use the raw materials that are shipped in dry bulk Container shipping traffic is one of the best barometers out there when it comes to the global economy. So, it's encouraging that Drewry's latest October outlook forecasts container shipping rates for major East-West trades will rise 18%.
Global container trade volume should recover slightly in the second half of 2009, and through 2010.
It is expected that there will be a recovery in trade flows for 2010. But capacity is also expected to rise. So, it seems the supply/demand balance will remain poor into 2010. This would be a good time to consider names like DRYS, EGLE, DSX or GNK. It's doubtful these stocks will increase as much as the index but the may return to their May 2009 levels as they usually track the index.