Baltic Dry Index
The BDI (Baltic Dry Index) is a leading indicator for the bulk shipping industry. It tracks a number of shipping routes and the prices paid for transporting major bulk commodities. It’s useful for assessing the outlook of global trade. A rising BDI is positive for the dry bulk shipping industry. The industry engages in the transportation of major raw materials—like coal, iron ore, steel, copper, and grain—across the ocean. In contrast, when the BDI falls, it’s a negative sign for companies engaged in dry bulk shipping.
Index gains in May
In the first half of May, the BDI gained close to 8%. On May 15, it reached a level of 634—compared to a historic low of 509 on February 18, 2015. The BDI saw these levels after a gap of nearly five months. Since then, it has been on a downtrend—led by a slowdown in imports, mainly from China.
The recent surge in the BDI is mainly due to the uptick in China’s iron ore demand, which is likely seasonal. Norwegian ship broker Fearnley noted that “The increase in rates was driven by a combination of delays over bad weather, a larger number of idled ships that had reduced tonnage capacity, and increased iron ore sales.”
However, a level of 634 isn’t healthy for the shipping industry. It’s still a decline of 37.9% on a YoY (year-over-year) basis. It’s important to note that a sustained increase could bode well for dry bulk shippers.
Impact on shipping companies
Industry experts believe that the BDI should remain depressed for the next two to three years given the oversupply and weak demand growth. With the index retreating, companies like DryShips (DRYS), Navios Maritime Partners (NMM), Scorpio Bulkers (SALT), and Safe Bulkers (SB) will likely be affected.
The SPDR S&P Metals and Mining ETF (XME) will also be affected. It invests in industries like steel, coal and consumable fuels, gold, precious metals and minerals, aluminum, and diversified metals and mining. The Guggenheim Shipping ETF (SEA) invests in major shipping companies around the world. Navios Maritime Partners forms 2.6% of SEA’s holdings.
In addition to freight rates, vessels’ purchase prices offer significant insight into the shipping industry’s dynamics. We’ll discuss newbuilds’ prices in the next part of this series.