Jumping ship

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

30 Sep 2008

Yet more reason to panic? The Baltic Dry index, which measures dry bulk shipping costs, plunged by nearly a quarter last week - 10 per cent on Friday alone - as rates plummeted for the biggest ocean carriers of raw materials. Shipping groups' shares, notably in Asia, have followed suit. Given the index's reputation as a leading indicator, that looks scary. In fact, the index's predictive value has weakened as it has become far more volatile than the

commodities markets underlying it, gyrating around on factors such as shipping supply bottlenecks. It has twice doubled and fallen back within 15 months; its latest slide leaves it 70 per cent below its May peak.
The Baltic Dry once correlated closely with global commodity indices. It started yoyoing in 2002 as China became a vast suction pump for materials such as iron ore and coking coal, straining the global supply chain. And China is driving today's plunge. The expected post-Olympic rebound - as polluting plants shuttered during the Beijing games reopened - has not occurred, with steel producers jittery over demand. They have also suspended buying iron ore from Brazil's Vale in protest over cheeky demands by the world's largest producer for a mid-contract price increase. With China's ore stockpiles overflowing, ships are sailing empty from Brazil. Another pressure on the index may be sell-offs of forward freight agreements, or options contracts on freight rates, as finance houses dump derivatives.
But while its movements may be exaggerated, the Baltic Dry's drop does reflect a weakening of Chinese raw material demand. Meanwhile, Drewry, the London-based shipping consultants, forecasts growth in container ship imports from Asia to Europe will fall from 15 per cent in recent years to 4-5 per cent this year while container imports from Asia to the US will decline 2 per cent. Just as money is no longer rocketing round the financial system, so goods flowing round the world's seaways are slowing too.

Source: Financial Times