The Baltic Dry Index decreased by 3 points on Monday to reach 848 points as hire rates continue to fall with the approaching slow season for seaborne trade.
While a slowdown this time of year is typical, there are concerns that the supply situation for ships will underpin the BDI for months, even when fall hits and restocking season commences.
The BDI staged a fairly consistent recovery since it fell to a record low of 290 points in February 2016, with an increase in cargoes and a decrease in available ships supporting the recovery, but this spring downside has hit. The BDI is down since peaking at 1,338 points in March. Even though the BDI has been regrouping, it is still well below its peak of above 11,000 points.
The reason for the anemic recovery is the oversupply of ships, a situation created due to the amount of ships that entered construction during the past economic growth cycle. These ships were planned for when the economy seemed unstoppable and they entered service when global economies were still reeling from the “Great Recession”.
In 2016, an increase in ship scrapping rates boosted the BDI, but by all indications, ship scrapping rates are now retreating. The rebound in the BDI is partially being blamed for the decrease in scrapping rates, but with hire rates just hovering in profitable territory, the willingness of shippers to stall scrapping with just a modest increase in the BDI suggests it will be a long and painful road for the BDI’s recovery.
While scrapping rates are retreating and newbuilds are increasing there is a mixed outlook for seaborne trade demand in the second-half of the year as China’s massive infrastructure programs wind down.