Baltic Dry Index
The Baltic Dry Index measures the cost of major raw materials that are transported by sea in the global economy. Indicating a strict demand supply price situation, the lower the cost to move goods by ship, the lesser it is for the amount of goods to ship.
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The Baltic Exchange Dry Bulk Index (BDIY) is a composite of rates for different ship sizes factoring in the average daily earnings of capsize, panama, supramax, and handysize dry bulk transport vessels. Meanwhile, the majority of the classes of vessels that make up the index are at their lowest level for the time of year since at least 2006, with the exception of Capesize ships, which are used to carry iron ore or coal cargoes of about 150,000 tons.
How the Baltic Dry Tanker Index performs, especially its year-over-year (or YoY) growth, is one factor that has significant implications for companies like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Navios Maritime Partners LP (or NMM), Navios Maritime Holdings Inc. (NM), Safe Bulkers Inc. (SB), and the Guggenheim Shipping ETF (SEA).
In trading, the Baltic Dry Index declined to 755 on July 31, 2014 from 894 at the beginning from the month. In the last week of July, the index slumped to its 52-week low of 723 on July 22, 2014. After the index touched its low, it reversed its trend and gained marginally. The index has experienced its falling trend since June mainly due to lower capsize rates. On a YoY basis, the index has declined by 29%. The Newbuilding prices for capesize vessels remained consistent at its June, 2014, levels of $54 million in July, 2014.
The Baltic Dry Index has been on the declining trend since June. It was negatively affected by China’s slowing growth and its transformation to a service oriented economy. However, with the Chinese economy showing signs of improvement through peaking purchasing managers’ indexes (or PMIs) and also introducing mini-stimulus measures, the shipping industry may gain stable momentum. Also, China’s recent efforts to instill the confidence back into its real estate market will support the dry bulk shipping industry.
Let’s take a look at the vessel prices and how it supports the industry.