The Baltic Dry Index declined four-straight sessions this week, with the shipping metric now at 957 points, firmly below 1000 points with little expectation of making up ground in the short-term as shipping demand undergoes its seasonal slowdown.
The BDI has been pressured by declining rates for all of its component ships, but recently losses have been greatest for capesize and panamax ships. However; at the end of the week, the capesize index found some support in what could have been a reaction to the news that Vale (NYSE:VALE) found hull cracks in a third converted very large ore carrier (VLOC) ship it has on charter.
According to Argus, this has put the viability of the vessel class under scrutiny. VLOC’s are a subcategory of capesize ships, but if they are scrapped it means they will need to be replaced with other capesize ships. Given the current oversupply of ships, anything that has the potential to remove some boats from service is positive for the BDI.
Meanwhile, the panamax sector was also under pressure this week, but according to Freight Investors Services, on paper, the panamax is entering oversold territory. In the coming months, a rebound in the panamax is the best chance the BDI has for a rebound. Even though capesize ships may be garnering some support right now from the Vale situation, capesize ships primarily transport iron ore and coal and seaborne trade of those two commodities will be weak over the summer.
Panamax ships, however; could see an uptick in interest. Panamax ships transport grains and although right now we are in a bit of a lull when it comes to harvest season, that will change soon.