Why the Baltic Dry Index is decreasing

Katie Dale - Author

Nov. 20 2020, Updated 2:45 p.m. ET

Baltic Dry Index

The Baltic Dry Index measures the cost of major raw materials. The raw materials are transported by sea in the global economy. It indicates a strict demand supply price situation. When the cost to move goods by ship is lower, there are less goods to ship.

The Baltic Exchange Dry Bulk Index is a combination of rates for different ship sizes. It factors in the average daily earnings of Capesize, Panamax, Supramax, and Handysize dry bulk transport vessels. Most of the vessel classes that make up the Index are at their lowest level for this time of year—since at least 2006. Capesize ships are an exception. They’re used to carry iron ore or coal cargoes of ~150,000 deadweight tonnage (or DWT).

September performance

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The Baltic Dry Index recorded a decreased percentage in trading to 1,063 on September 30, 2014, from 1,151 at the beginning of the month. So far in October, the Index decreased more to 1,029 as of October 6, 2014. Capsizes pulled down the Index by the maximum rate. On a year-over-year (or YoY) basis, the Index recorded a decreased percentage from 2,115 on October 7, 2013. Since October 2, the iron ore ship charter cost—charter cost to ship iron ore—declined the most.

Impact on companies

How the Baltic Dry Tanker Index performs, especially its YoY growth, is one factor that has significant implications for dry bulk companies.

Historical trends suggest strong third and fourth quarters. Investors should watch the Index for any rate of increase.

As a result, the following dry bulk companies—like Star Bulk Carriers Corp. (SBLK), Safe Bulkers Inc. (SB) Baltic Trading Inc. (BALT), and Knightsbridge Tankers Ltd. (VLCCF), and the Guggenheim Shipping ETF (SEA)— could benefit in the short-term.

However, if the YoY changes remain in the negative, then the long-term outlook for these companies will remain in the negative. So, what are some of key factors that affect the Baltic Dry Index? We’ll discuss this in the next part of the series.

Visit the Market Realist Marine Shipping page to learn more.


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