Baltic Dry Index Slide Accelerates with Largest Capesize Rates Plunge Since COVID-19 Pandemic

The Baltic Exchange’s dry bulk sea freight index booked its fifth consecutive weekly decline as rates slid across most vessel segments, taking it to lows not seen since December 2020 on Friday. More negative news out of the Chinese ailing property sector, COVID-19 curbs, steel production cuts and tensions over Taiwan hamper shipping. The BDI index saw a weekly loss of 13.4% on the week. Capesize vessel rates saw their biggest daily plunge on Thursday since the onset of the COVID-19 pandemic, in May 2020 on lower iron ore demand falling 216 points, or about 20%. On Friday it plunged another slumped by 12.8% to 756 points.

Capesize Vessel

Baltic Exchange Dry Index (BDI) Segments (August 19, 2022)

  • The Baltic Exchange’s dry bulk sea freight index on Friday fell 3.1% to 1,279 points on Friday, the lowest since December of 2020 and extending losses for the second straight session.
  • The overall index, which factors in rates for capesize, panamax and supramax vessels lost 13.4%, its fifth consecutive decline, pressured by weak demand across the larger vessel segments.
  • The capesize index, which tracks iron ore and coal cargos of 150,000 tonnes, slumped by 12.8% to 756 points,
  • Average daily earnings for capesizes, which typically transport 150,000-tonne cargoes such as iron ore and coal, were down $1,790 at $7,188
  • The panamax index, which tracks about 60,000 to 70,000 tonnes of coal and grains cargoes, as down for the 19th straight session, falling 3.5% to 1,688 points.
  • Average earnings for panamaxes, which usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, decreased $504 to $15,738.
  • The supramax index gained 37 points to 1,735 points, rising for the sixth consecutive session.
BDI August 19, 2022

Factors influencing Freight right now

  • The Biden administration announced sweeping export restrictions against Russia, hammering its access to global exports following Moscow’s attack on Ukraine.
  • Shipbroker Jefferies, however, expects average rates for 2022 to be higher than last year rates “especially as most Western buyers of commodities try to diversify away from Russian cargoes”.
  • Shanghai remains largely shuttered for eighteen consecutive weeks. Air cargo operations remain severely constrained at PVG.  Ramp handlers, truckers, and key employees have seen limited access to airport and cargo facilities. As a result, most major airlines and air cargo carriers have canceled flights in and out of PVG.
  • With few logical geographic alternatives to PVG, cargo backlogs continue to mount. When combined with new production volumes as the city itself reopens, we estimate that backlogs could take weeks to clear, driving significant capacity tightness on PVG-based lanes, and thus materially increasing prices.
  • Dalian and Singapore iron ore futures fell as traders weighed demand prospects in top steel producer China, plagued by a debt crisis in its real estate industry.
  • Maize crop conditions in the EU’s top grain producer France declined steeply last week to their lowest in at least a decade, data from farm office FranceAgriMer showed, due to a worsening drought and heatwave.
  • Meanwhile, two more ships left Ukraine’s Black Sea ports, including one laden with the first Ukrainian wheat to be exported under a U.N.-brokered deal, Turkey’s defense ministry said.

Port Delays

  • Delays at ports along the U.S. West Coast remain
  • Ports have tried to extend working times to clear backlogs and companies have sought to shorten delivery routes and diversify goods suppliers to alleviate delays.
  • Leading container group A.P. Moller-Maersk told its customers last quarter it was struggling to move goods around the world.

The Baltic Dry Index (BDI) is a composite of the dry bulk timecharter averages and provides a continuous time series since 1985. The BDI is a composite of and factors in rates for Capesize, Panamax and Supramax Timecharter Averages. It is reported around the world as a proxy for dry bulk shipping stocks as well as a general shipping market bellwether.

  • Baltic Capesize Index (40%)
  • Baltic Panamax Index (30%) 
  • Baltic Supramax Index (30%) 

Baltic Dry hit a temporary peak on May 20, 2008, when the index hit 11,793. The lowest level ever reached was on Wednesday the 10th of February 2016, when the index dropped to 290 points.

There a number of negative catalysts stemming from the climate and supply crisis stifling demand. While we are seeing easing congestion at Chinese ports and thin coal cargo flows out of the Pacific are weighing on capesizes. Steel futures prices in China jumped, with hot-rolled coils and construction rebar climbing more than 4% in intraday trade to narrow the gap with spot prices, as traders cheered a marginal improvement in consumption of industrial metals.

With China striving to ease it’s energy crisis by limiting steel production to limit industrial power usage portside inventory of iron ore has swollen to the highest level in 31 months. China is the world’s top steel producer and their restrictions have crushed demand. for iron ore.

What are the Baltic indices?

From The Baltic Exchange

The Baltic indices are based on assessments of the cost of transporting various bulk cargoes, both wet (eg crude oil and oil products),dry (eg coal and iron ore), gas (LNG and LPG) made by leading shipbroking houses located around the world on a per tonne and daily hire basis. The information is collated and published by the Baltic Exchange. We also provide daily container market assessments in collaboration with Freightos and a weekly air freight index as well as assessments on vessel operating costs, Sale & Purchase and vessel recycling prices. 

The principal dry cargo indices are: the Baltic Exchange Capesize Index (BCI); Baltic Exchange Panamax Index (BPI);  the Baltic Exchange Supramax Index (BSI); and the Baltic Exchange Handysize index (BHSI). The Baltic Exchange Dry Index (BDI) is calculated by taking the timecharter components of the Baltic’s capesize, panamax and supramax indices. 

The Baltic Exchange International Tanker Routes (BITR) reports on international oil routes and makes up the Baltic Exchange Dirty Tanker Index (BDTI) and the Baltic Exchange Clean Tanker Index (BCTI). 

We cover the gas markets through our LNG (BLNG) and LPG (BLPG) assessments. 

Shipping investors are able to assess the health of vessel earnings through our quarterly operating expenses assessments, as well as our weekly Sale & Purchase and Recycling assessments. 

Forward curves for all listed freight contracts are also published on a daily basis.

Source: The Baltic Exchange Reuters

From The TradersCommunity US Research Desk