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. A rising BDI is positive for the dry bulk shipping industry, and vice versa.
BDI on a downward trend
The BDI has fallen 15.7% in the first 26 days of October. This is after a 1.2% fall in the month of September. The month of October has been particularly weak for Capesize rates. The Baltic Capesize index has fallen by 28% through October 26, while the Panamax and Supramax indices have fallen 4.4% and 6.1%, respectively.
Most of the fall in BDI is due to the Capesize rates decline, which is largely due to iron ore inventories inching up in China.
The BDI is a function of the supply of and demand for shipping vessels. As the supply side remains strong in the face of declining demand growth from China and elsewhere, the BDI is expected to remain depressed until the supply-demand balance returns to the market. In the short term, restocking-driven demand led by China and the start of the grain season could lead to an uptick in the BDI.
Impact on shipping companies
On a structural basis, however, the market could find a balance at lower rates due to a shift in China’s focus on consumption rather than investment-driven demand. With the index retreating, companies such as DryShips (DRYS), Navios Maritime Partners (NMM), Scorpio Bulkers (SALT), and Navios Holdings (NM) will likely be affected.
The SPDR S&P Metals and Mining ETF (XME) will also be affected. It invests in industries such as 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.