Baltic Index Pressured by Lower Capesize Demand Between Brazil and China

Baltic Exchange’s dry bulk sea freight index fell Friday 1% on soft demand for the larger capesize segment. The benchmark iron ore route between Brazil and China (C14) average spot rate collapsed 19.4% as China’s industrial sector remained stalled. In the current economic climate creates no urgency by traders to secure bulk commodities, in particular iron ore. The BDI fell for a second straight week, down by 1%. Panamax (5TC) route basket gained 3% for the week.

Capesize Iron ore loading

Baltic Exchange Dry Index (BDI) Segments (October 21, 2022)

  • The Baltic Exchange’s dry bulk sea freight index on Friday, extended losses for the third straight session on Friday falling 1% to a more than one-week low of 1,819 points. The overall index, which factors in rates for capesize, panamax and supramax shipping vessels, was down for a second straight week, down by 1%
  • The capesize index, which tracks iron ore and coal cargos of 150,000 tonnes, declined by 1.9% to 2,071 points.
  • Average daily earnings for capesizes which typically transport 150,000-tonne cargoes such as coal and steel-making ingredient iron ore used in construction, slipped 2.9% to $17,175 per day
  • The rate for the C14 roundtrip voyage, the benchmark iron ore route between Brazil and China collapsed 19.4% over the week to hit $10,705 per day on Friday.
  • The panamax index, which tracks about 60,000 to 70,000 tonnes of coal and grains cargoes, decreased by 0.8% to 2,144 points. and marked a weekly rise of about 3%
  • Average daily earnings for panamaxes which usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, gained 3% to land $19,293 per day on Friday.
  • The supramax index added 2 points to 1,678 points. 
BDI October 21, 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.
  • Chicago wheat eased on hopes of progress in negotiations to maintain a Black Sea grain corridor after the previous day’s warning by Moscow that it could quit the deal.
  • India’s thermal coal imports from Russia were expected to fall for the first time in four months in September, potentially resulting in lower revenues for Moscow at a time it is mobilizing more troops to fight in Ukraine.
  • Dalian iron ore was set for its first weekly loss in five, dragged down by worries about top steel producer China’s stringent zero-COVID rules and restrictions ahead of the ruling Communist Party Congress.
  • India restricted rice exports after shipments jumped sharply in the past few months and amid concerns over the new season crop because of below-average rainfall in four key producing states, a top government official said.
Dry Bulk Rotes Source: SEC

Port Delays

CNBC Supply Chain Heat Map Sep 28, 2022*
  • Labor union ILWU is being accused of slowdown tactics at Oakland and Seattle-Tacoma ports.
  • The union counters that management improperly awarded work to another union.
  • There are concerns that cargo handling has been reduced as result of worker disruptions.
  • Labor negotiations are about to enter a fourth month.
  • The Port of Los Angeles diverted 40,000 containers to the Port of Long Beach in August when dockworkers at the Port of LA refused to work at the automated section of APM Terminals, the largest container-handling facility citing safety concerns. APM is a part of A.P. Moeller-Maersk A/S and the automation part of the terminal has been operating since 2020. Workers did not work at that facility for nearly four weeks.
  • That diversion of containers to Long Beach, in addition to the continued re-routing of containers to the East Coast, led to the Port of New York to take the No. 1 spot in processing import and export containers in August. Port of Los Angeles fell to third.
  • Export delays out of the Pacific Northwest are one challenge that U.S. farm exporters have been experiencing. One U.S. logistics manager recently told CNBC they were avoiding the Seattle/Tacoma Port by using the UP to Norfolk Southern rail route to the Port of Virginia where their cargo was loaded on a Hapag Lloyd vessel.
CNBC Supply Chain Heat Map Sep 7, 2022*
  • The Unite union currently striking at the Port of Liverpool announced a second strike from Oct. 11-Oct. 17.
  • The U.S. is the top trade partner, representing 30% of Port of Liverpool volume.
  • Approximately $1 billion in trade is moved weekly at the Port of Liverpool.
  • Diageo, Caterpillar, Donaldson, and Xerox are just some companies who use Liverpool port.
  • “The economic and political climate in the U.K. is volatile and this sustained disruption will start to cause sustained problems at a time when imports are becoming very expensive due to the weak pound and some U.S. exporters will be starting to price risk back into their contracts.”
  • 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); The Brazil-China iron ore route is often considered the key driver of rates for Capesize vessels, which are commonly employed on the route.
  • Baltic Exchange Panamax Index (BPI)
  • Baltic Exchange Supramax Index (BSI)
  • Baltic Exchange Handysize index (BHSI).
  • 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.

*The CNBC Supply Chain Heat Map data providers are artificial intelligence and predictive analytics company Everstream Analytics; global freight booking platform Freightos, creator of the Freightos Baltic Dry Index; logistics provider OL USA; supply chain intelligence platform FreightWaves; supply chain platform Blume Global; third-party logistics provider Orient Star Group; marine analytics firm MarineTraffic; maritime visibility data company Project44; maritime transport data company MDS Transmodal UK; ocean and air freight rate benchmarking and market analytics platform Xeneta; leading provider of research and analysis Sea-Intelligence ApS; Crane Worldwide Logistics; and air, DHL Global Forwarding; freight logistics provider Seko Logistics; and Planet, provider of global, daily satellite imagery and geospatial solutions.

Source: The Baltic Exchange CNBC

From The TradersCommunity US Research Desk