Baltic Dry Index Continues to Strengthen as Chinese Buyers Return from Holiday

The Baltic Dry Index (BDI) added one point on Monday to finish at 922 points, advancing its recent tilt higher. After some weakness at the end of September, the BDI turned higher mid-week last week. Pushing the BDI higher is the return of China to the markets, following their week-long National Day holiday.

The National Day holiday from Oct. 1-7 in China impacted shipping demand, but as that holiday wrapped up and shipping activity improved, and the BDI pulled higher. Looking forward, optimism remains over the demand to ship raw materials, and according to one broker, the capesize market is looking good for the next four-six weeks. While demand to ship iron ore remains robust, there is also optimism about the demand to ship other mined goods.

The BDI has improved significantly since the first-quarter of 2016, with the hire rates for all bulk carriers seeing significant improvements, but the market still face some challenges, namely the oversupply of vessels. Even though demand has picked up, an oversupply of ships means that average industry freight earnings are still around loss-making levels. For the BDI to see a significant improvement in value, ship scrapping rates have to pick up to balance the supply side of the equation. At 922 points, although the BDI has more than tripled since hitting its record low last February, it is still off its record high of above 11,000 points.

In the third quarter, solid demand to transport grains and raw materials pushed the BDI higher, and through the fall continued demand to transport raw materials for restocking ahead of winter should continue to support increased hire rates ahead of the winter lull. The BDI typically sees its annual price peak in the fourth quarter of the year.

Donald is a strategist for economiccalendar.com. He specializes in a fundamental approach while informing traders of relevant economic data. Actively trading since university, Donald trades indices and commodities. He earned his Bachelor's in Finance from Baruch College's Zicklin School of Business in New York City.