BDI- The Baltic Dire Index?

The Bellwether Baltic Dry Index- the index for dry bulk shipping- continued its near-precipitous fall that started two months ago and accelerated in December (see graph). It has fallen below 1000 points for the first time since early 2009, closing at 926 points today after falling almost 5% during the day; the BDI has also fallen almost fifty percent in the last five weeks; it was trading in the 2150 zone in November last year.

Analysts say that increasing pessimism about trade in the first quarter of the year is the cause of this crash, a sentiment that has been accentuated by factors as diverse as overcapacity issues and fresh deliveries, slowdown in Chinese demand, the Eurozone crisis- and the weather, that has interrupted cargo operations in Brazil, Colombia Indonesia and Australia.

Commodity carrying ship-owners have been hard hit in recent weeks, with Capesize charter rates down from around $33,000 not so long ago to around $8,000 today; a figure that is well below breakeven figures, says shipbrokers Fearnleys, adding that tonnage oversupply was the single biggest reason for the BDI collapse. Observers say that the situation will only worsen in the holiday week during the Chinese New Year that starts next week, though that event seems to have been factored in by the markets.

The Panamax market has experienced a dive in rates of 20.74% in a week, says Fearnleys, but points out that the Capesize market-down 41.42% -is much worse. "We see coal cargoes under contracts being postponed and even cancelled and this will of course influence the market with more vessels free in the market. With Chinese New Year approaching we do not expect any immediate recovery", they say.

The BDI has been going downhill everyday for almost three weeks, with charter rates for all four vessel types in the index plunging. Maersk Brokers' Director Kasper Moller says, “If the Chinese market just takes its foot off the accelerator for a second that has an immediate impact, “We’re having a lot of new ships being delivered, too.” The Chinese slowdown, coming at a time when new deliveries are still being scheduled, has proved calamitous for the BDI; Panamax rates are at a 33-month low.

Janet Lewis of Macquarie Equities Research’s says that the situation will remain worrying over at least the next six months. “The dry bulk market has responded to the glut of supply by restraining orders over the past year as well as by scrapping,” she said, “but these efforts have been overshadowed by the ongoing high level of deliveries of new bulkers.”

Commodity dry cargo trade has grown just 4.5% in the last calendar year, but the tonnage that services this business has shot up 14% and stands at a staggering 611 million DWT. Worse, another 139 million DWT is to be delivered in 2012. Clearly, it will be quite sometime before the situation stabilises. It appears that the only people in the business who will be smiling in 2012 will be the community of charterers.