Baltic Dry Index
The BDI (Baltic Dry Index) is a leading indicator for the bulk shipping industry. It’s a measure of the cost of shipping major bulk commodities on a number of shipping routes. It’s calculated daily by the Baltic Exchange based on current freight rates. A rising BDI is positive for the dry bulk shipping industry and vice versa.
Index is inching up
The BDI has been rising recently, hitting a level of 915 on July 14. That was the highest level yet for 2015. In the week ending June 19, the index rose by 123 points or 19%. For most of 2015, the BDI has been below 600. The BDI reached a historic low of 509 on February 18, 2015. From then on, it was on a downtrend led by a slowdown in imports, mainly from China. But the BDI started steadily climbing at the end of May.
An uptick in grain volumes in the Atlantic is mainly responsible for the recent surge in the BDI. The recent surge in iron ore shipments from Australia and Brazil have also led the index higher. We’ll look at this in more detail later in this series.
The recent rally in the BDI is reflected in vessel activity across the board, including Capesize, Panamax, and Supramax.
Impact on shipping companies
Though the BDI has improved in the last two months, industry experts still believe that oversupply and weak demand growth will keep the BDI down for another year or so.
A retreating index affects dry bulk shipping companies. But spot rates impact companies differently. While DryShips (DRYS), Scorpio Bulkers (SALT), and Safe Bulkers (SB) are significantly affected, Navios Maritime Partners (NMM) and Diana Shipping (DSX) aren’t affected to the same degree. The majority of spot exposure at Navios Maritime Partners and Diana Shipping is covered through fixed-time charter contracts. Having said that, rolling contracts over in a weak market does present a risk to these companies.
The SPDR S&P Metals and Mining ETF (XME) is also affected by the BDI. It invests in industries including 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, the purchase prices for vessels can offer significant insight into the shipping industry’s dynamics. We’ll discuss the price of newbuilds in the next part of this series.