29-04-2021 Baltic Dry Index breaks 3,000 points for first time in more than a decade, By Michael Juliano, TradeWinds
The Baltic Dry Index (BDI) has crested the elusive 3,000-point mark during a months-long rally in dry-bulk shipping that has been driven mostly by China’s bottomless appetite for iron ore. The BDI on Thursday hit 3,007 points, venturing into this rare triumvirate territory for the first time in almost 11 years since it achieved 3,020 points on 15 June 2010. The long-lived metric, an overall index of sentiment in dry-cargo shipping, last came close to this milestone on 9 September 2010 when it rose to 2,988 points. The BDI achieved this new high on Thursday after Brazilian iron-ore giant Vale said it planned to expand its annual mining capacity to 450m tonnes by the end of 2022. Meanwhile, spot rates for capesizes have enjoyed an upward trend for months amid China’s persistent push for more and more ore. The sub-capesize bulker segments too have seen some of the highest spot rates seen in a decade or more.
The capesize 5TC, a weighted average of spot rates on five key routes, has almost quadrupled from since 15 February to $39,589 per day on Thursday, according to Baltic Exchange data. Dry bulk shipping’s bull run has been so impressive that some industry experts have called it a precursor to the next supercycle. But it’s not all about China and Brazil, according to John Kartsonas, founder and managing partner of asset-management advisory Breakwave Advisors. Strong commodity prices are also driving dry bulk shipping’s upward trend, he says, as copper on Thursday hit $10,000 per tonne for the first time in a decade. Meanwhile, iron ore is selling at an all-time high of almost $179 per tonne and corn is attracting higher than $7 per tonne.
“So, one has to remember that dry bulk is part of the global commodities market,” he told TradeWinds. “And with higher priced commodities, traders can afford to pay more for transportation as the profit margins expand faster than the cost of freight.” He said freight rates can be volatile and may reach new highs and new lows over the next few years. “The fundamentals support that, sentiment in the industry has changed and externalities such as decarbonisation of shipping are adding further fuel to the fire,” he said.
Changes in commodity demand amid Australia-China tensions have changed coal trade flows and boosted dry bulk shipping, said Rebecca Galanapoulos Jones, research analyst for London broking house Alibra Shipping. But China’s iron-ore consumption may decline as the country tries to achieve certain green goals, she told TradeWinds. “However, with the Covid-19 situation worsening in countries such as India, their recovery later in the year may then provide some support for dry bulk,” she said.
This ongoing rally in dry bulk shipping’s physical market could bode well for the paper market, said Duncan Dunn, senior director of Simpson Spence Young’s SSY Futures. “It’s great news and hopefully there will be strong interest in the FFA [freight-forward agreement] markets as freight traders develop their strategy to maximise their benefit or mitigate their risk,” he told TradeWinds. FFA capesize rates for April gained $146 per day on Thursday to $29,600 per day for April, according to the Baltic Exchange. Those for May improved $310 per day to $38,846 per day.
Jefferies analyst Randy Giveans said the rising BDI certainly helps the dry bulk shipping equities and expects it to reach 3,300 points by May or June. “We remain very bullish on the sector and recently increased our dry bulk price targets across the board,” he told TradeWinds. He said all the right factors have been in place for the BDI to break 3,000 points. “It’s the combination of Chinese demand for iron ore, global coal demand stabilising, robust grain/soybean trade, and minor bulks ramping with GDP. Combine this demand strength with minimal supply growth, and rates will continue to climb. We’ve been saying this would happen for a few months now. We just thought it would be this summer.”