Baltic Exchange’s Dry Bulk Sea Freight Index Subdued With Lunar Festival, Port Delays and Low Steel Production.

The Baltic Exchange’s dry bulk sea freight index was lower this week hampered by the Lunar New Year holiday through Asia. The BDI was already hampered by downward pressure on rates from weak shipping demand. China’s crude steel production according to the World Steel Association, output for 2021 fell for the first time in six years. China is the world’s largest consumer of iron ore. Its iron ore imports fell for the first time in three years, according to customs authorities. Additionally iron ore shipping has been interrupted by heavy rain in Brazil.

Panamax Vessel

Baltic Exchange Dry Index (BDI) Segments (Feb 4, 2022)

  • The Baltic Exchange Dry Index fell 2 points or 0.1% to 1,423 with lower demand because of the week-long Lunar New Year holiday in Asia.
  • The Capesize index slipped 49 points, or 3.8%, to 1,242. Average daily earnings for capesizes, which transport 150,000-tonne cargoes such as iron ore and coal, fell by $408 to $10,302.
  • The Panamax index which tracks cargoes of about 60,000 to 70,000 tonnes of coal and grains, rose 25 points to 1,796. Average daily earnings for panamaxes increased by $226 to $16,165.
  • Among smaller vessels, Supramax index gained 23 points at 1,594.

BDI Jan 28, 2022

Factors influencing Freight right now

  • China’s December iron ore imports had slumped 18% month-on-month to 86.07 million tonnes, sending its annual purchase to 1.12 billion tonnes in 2021, down from the record high a year earlier, customs data showed.
  • Heavy rains have pounded the mining region of Minas Gerais state in southeast Brazil relentlessly for the past three weeks,
  • French steel pipe maker Vallourec has suspended mining operations in Pau Branco.
  • Omicron uncertainty

Randy Giveans, vice-president, equity research, at Jefferies. commented on the current price situation;

“This is normal seasonal softness going into mid to late January throughout February, the biggest reason is Chinese New Year. This year we need to add on Beijing Winter Olympics and weather disruptions in Brazil. The near-term outlook is certainly going to be weak and then we think there will be some pent-up demand that boosts rates in late February into March and April.”

Port Delays

  • Container xChange canvassed 500 freight industry respondents and found 66% of those polled expected Chinese New Year factory closures to further disrupt container shipping supply chains.
  • Josh Brazil of project44 said it would take “several years to return to pre-pandemic supply chain stability”. He said new vessel build capacity would not come to the market until 2024, meaning there was “no quick fix”.
  • “While Europe has experienced much less port congestion compared to major U.S. ports, the congestion in southern California causes schedule disruptions and capacity constraints that have global consequences,” Brazil said.
  • Delays at ports along the U.S. West Coast have also increased, Oakland at over 10 days in January from around five in December, according to project44 data. Delays at Los Angeles stayed around six days in December and January.
  • 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 month 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%) 

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