What is the Baltic Dry Index saying?

published 2 October 2009

The Baltic Dry Index (BDI) tracks the cost of shipping bulk commodities and is thus deemed a leading indicator for the world economy and markets. But while it led the global equities slide of September 2008 and the rebound of March 2009 by around three months, its 55% drop since June may not mean equities are due for a fall, says Breakingviews.com's Constantine Courcoulas. The recent picture has been skewed by China's stockpiling of commodities and conditions in the shipping industry.

Part of the surge since March has been due to a Chinese spending binge on raw materials, which is now ending. A sub-index tracking the cost of hiring capesizes, the largest of the bulk cargo ships that carry iron ore and coal, has plummeted, but three other sub-indices have climbed since June, says Capital Economics: the key issue is reduced stockpiling in China.

Rising shipping capacity is also playing a part: there will be a 14% increase in the capesize fleet this year. For now, says Courcoulas, the BDI "looks like a measure of the shipping industry's grim dynamics" rather than a harbinger of another equities slide.