Baltic Dry Index Down 17% for the Week, Worst Fall Since October

Even though China keeps putting out cheery official numbers, its purchases of commodities are down, suggesting there is less to its stabilization than meets the eye. It’s early to say that this is conclusive, but there is a good bit of other anecdotal information and some firmer information raising questions about the true state of affairs in China.

From Bloomberg:

The Baltic Dry Index, a measure of shipping costs for commodities, had its worst week since October as Chinese demand for shipments of coal and iron ore slowed.

The index tracking transportation costs on international trade routes today slid 135 points, or 4.6 percent, to 2,772 points, according to the Baltic Exchange. That took its weekly drop to 17 percent, the most since the end of October.

“The Chinese have backed off and it’s starting to show in the number of shipments this month,” Gavin Durrell, a Cape Town-based official at Island View Shipping SA, Africa’s biggest commodities shipping line, said by phone today. “Iron ore and coal seem to be slowing down.”

China’s record coal and iron ore imports in the first half helped the index to advance as much as fivefold this year, reversing some of the record 92 percent collapse in 2008. Demand rose after the country’s government announced a 4 trillion yuan ($586 billion) stimulus package….

Rates are declining as Chinese steelmakers delay imports while they negotiate annual iron ore prices with producers such as Rio Tinto Group, BHP Billiton Ltd. and Vale SA, Durrell said. “I don’t think they will come back until they agree,” he said.

The drop reflects a wider slide in demand for raw materials that will likely push prices for metals, commodities and energy lower, Eugen Weinberg, a senior commodity analyst at Commerzbank AG in Frankfurt, said

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  1. Anonymous

    A friend of mine works at OOCL, one of the most conservative and consistently profitable shipping lines in an otherwise unprofitable industry. This company has not had mass layoffs in its history.

    She told me they canned more than half the people in her office. They wouldn't do this if they thought the decline was temporary.

  2. Lockstep

    This drop in the BDI is still a drop in the bucket and just a technical correction considering how much the BDI has moved this year. If it breaks downward more than 25%, then I would be concerned.

  3. duffolonious

    This decline is possibly not that telling. Since commodities fell through the floor late last year, China has been _stockpiling_ them. The the fact that there commodity purchases were up doesn't mean it was used to actually make things.

    So now that there commodity buying is going down may only be because they are done stockpiling for now. If that is the case then there production may increase well before there commodity demand picks up.

    The quickest to move will probably be there coal consumption (they've stopped reporting electricity consumption – so it's hard to tell).

    This is my guess at least.

  4. Anonymous

    they've stopped reporting electricity consumption

    Ah yes. The popular alternate metric used to measure economic activity when the official economic statistics are suspected of inaccuracy.

    Kinda reminds one of when the Fed stopped reporting M3 in 2006. That also was just "technical". It absolutely did not portend any trouble ahead.

  5. "DoctoRx"

    1. Yves: Thank you for this timely post.

    2. While "who knows" with a manipulated market, a money manager who called the panic AND the March low reports an ultra-high level of optimism. Thus I don't like to see two commenters shrug off this news. As of 2 weeks ago, 92% of NASDAQ stocks were above their 200 day sma. I remain fact-based. The developed world's economy is over-indebted and only being propped up by more steroids. Hair of the dog etc.

  6. emca

    The BDI is volatile, so I too don't see much in a short term swing. That being said the Index's volatility seems depended, both in last December's uptick and today's fall on the activities of one country. One might guess this is do to China's need to import raw materials she can't extract internally, but its also obvious that the rest of the World's economy has been underwater since May of 2008; leaving aside China this latest news would indicate nothing has improved in the larger realm of global trade.

    When the BDI turns up or down due primarily to some activity outside China's, then I'll want to review the fine print.

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