Baltic Dry Index hits 30-year low
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Mumbai: The Baltic Dry Index, a measure of shipping rates, fell to 498 points to touch a 30-year low on Friday, signalling that the recovery of the world economy is some distance away.
The index, which measures costs of shipping commodities such as coal, iron ore, steel and grain, plunged 1.19% to 498 points on Friday, pushed down by waning demand in global trade.
“It signals further trouble for the global economy,” said Atul J. Agarwal, managing director at shipping and oil exploring company Mercator Ltd, said.
On 20 May 2008, BDI hit its all-time high of 11,793 points. Since then it has fallen 95.78%.
The Baltic Dry Index is a composite of the Baltic Capesize, Panamax, Handysize and Supramax indices. It is the successor to the Baltic Freight Index and was first published on 4 January 1985 at a level of 1,000 points.
“BDI is largely dominated by coal and steel. The demand for both are muted currently,” Agarwal said.
Globally, steel faces an oversupply situation as the expected Chinese demand for its manufacturing activities has slowed down.
In turn, China too has also been dumping some of its own steel production across the globe.
Lower Chinese demand has also impacted global coal prices.
Besides, India’s reducing dependence on imported coal for its energy requirements has also impacted global demand expectations for coal.
Besides Mercator, domestic shipping companies such as Shipping Corp. of India Ltd, Great Eastern Shipping Co. Ltd and Chowgule Steamships Ltd undertake dry bulk cargo transportation.
On 20 November, Bloomberg reported that the volume of goods imported into China has already fallen by around 4% in the first three quarters of the year, after rising an average 11% per year in 2004-14.
That means China has cut around 0.4 percentage point from world goods trade growth in the nine months to the end of September, after having added an average 1 percentage point a year in the previous decade, the report said.
“The fall of BDI essentially means that the superfluous commodity requirements have vanished from the international market. Though the fall in BDI is signalling troubled times, there is every chance that it can revive with even a slight recovery of the world economy as there is no oversupply of vessels,” said a leading shipping consultant, requested anonymity.
He pointed out that the tanker segment, which transports crude oil, is doing well.
The consultant cautioned that there is excess supply of tankers that can cause troubles for the segment.
Shipping Corp. of India, for instance, has added more tankers to its fleet to insulate revenues from drying up in the bulk segment.
A note by ICICI Securities Ltd, dated 17 November, said Shipping Corp. of India’s fleet composition is heavily skewed in favour of tankers, which constitutes 52% of its total fleet strength.
“Further, bulk carriers form 25% of the total fleet, which was impacted during the year due to historic low levels of BDI,” ICICI Securities wrote.
The dry bulk shipping market will remain in recession due to contracting demand for iron ore and coal, and any recovery is not expected until 2017, according to the Dry Bulk Forecaster report published by global shipping consultancy Drewry in September.
“Falling demand and oversupply have severely impacted commodity values, with iron ore and coal prices in virtual free fall. The dry bulk shipping sector has been a casualty of these developments with resultant impacts on vessel earnings,” it said.
India’s merchandise exports contracted for the 11th consecutive month in October, as the value of petroleum product shipments declined on lower crude oil prices and external demand remained weak amid a tepid global economic recovery.
Exports contracted 17.5% from a year ago to $21.3 billion last month and imports shrank 21.2% to $31.1 billion. The trade deficit of $9.8 billion for the month was the lowest this fiscal, data released by the commerce ministry showed last week.