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The dry bulk shipping cycle: Interpreting the Baltic Dry Index

The dry bulk shipping cycle: Interpreting the Baltic Dry Index (Part 1 of 5)

Must-read: Has seasonal weakness hit the dry bulk shipping industry?

The Baltic Dry Index

The BDI (Baltic Dry Index) is a widely followed metric that reflects the overall rates of moving dry bulk cargoes like iron ore, coal, and grain across water. It’s collected daily by the Baltic Exchange, headquartered in London, and it serves as a good benchmark for what dry bulk shippers would earn if they employed their vessels now.

Dry Bulk Index by Shipping ClassEnlarge Graph

The Baltic Dry Index and seasonality

On January 14, 2014, the BDI stood at 1,370, down from a recent high of ~2,300 in mid-December of 2013. As most investors know, the recent movements reflect seasonal weakness.

Higher seasonal shipments

Rates tend to rise toward the end of the year as Chinese miners close their mines because of the cold weather and traders import more iron ore from countries in the global south—particularly Australia and Brazil—before the wet season starts there.

During the second half of 2013, iron ore imports were robust, accompanied by low port inventory levels in China and favorable prices. Coal imports were also strong, buoyed by higher seaborne supply from countries like Indonesia and Australia. For more information on countries involved in global trade, please visit our dry bulk investing overview series.

Entering weak seasonal periods

The first quarter of a calendar year is typically weak for the BDI, as heavy rains arrive in countries like Australia and Brazil, putting operations like mining and cargo loading in the Southern Hemisphere to a halt. The big Chinese New Year holidays—equivalent to Thanksgiving, Christmas, and New Year’s Eve combined—also play their part through lower economic activity. This year, authorities expect Chinese to make 3.6 billion trips for the upcoming New Year, which begins on January 31—the year of the horse.

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