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BDI Fell to an All-Time Low, Outlook Is Bleak

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BDI at an all-time low

As we discussed in the last part, the BDI (Baltic Dry Index) fell for 21 straight sessions to an all-time low of 498 on November 20. For the index, this is the lowest value since it started recording in 1985. It hit a peak of 11,793 in May 2008. This period coincided with the huge rise in the demand for commodities, especially from China. The index’s previous low of 509 was reached on February 18, 2015. Since then, it has been on a downtrend—led by a slowdown in imports, mainly from China. However, the BDI started rising at the end of May. Since October, it resumed a downward trend.

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Demand led the fall

Since October 22, the BDI fell by 37%. This was mainly due to the weaker-than-expected data out of China. The recent easing measures by the Chinese government didn’t seem to have the desired impact on the economy. This dimmed the trade outlook. It impacted the dry bulk shipping.

The BDI is a measure of the cost of shipping major bulk commodities on a number of shipping routes. Since the BDI is a leading indicator for the bulk shipping industry, a rising BDI is positive for the dry bulk shipping industry and vice versa. As a result, the current downturn isn’t good for the industry.

Impact on shipping companies

While the long-term balance will be provided by the supply-demand balance, the near-term catalysts for a sustained increase in freight rates also remain muted. With the index retreating, companies like DryShips (DRYS), Navios Maritime Partners (NMM), Scorpio Bulkers (SALT), and Navios Holdings (NM) will likely be impacted.

The SPDR S&P Metals and Mining ETF (XME) will also be affected. XME invests in industries like steel, coal, 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.

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