Baltic Index Climbs On Uncertainty And Extreme Weather

by John Konrad (gCaptain) The Baltic Exchange’s main sea freight index, the Baltic Dry Index (BDI), rose for a fourth straight session on Monday, fueled by higher demand for Capesize vessels.

The index – a composite of the Capesize, Panamax, and Supramax time-charter averages for ships carrying dry bulk commodities – rose 11 points, or 0.3%, to 3,210. The Capesize index rose almost 1%, or 35 points, to its highest value this month. Average daily earnings for the larger Capesize bulkers jumped by $286 to $32,755.

The Panamax index dropped 15 points, or 0.4%, to 3,513, its lowest since June 23. Average daily earnings for Panamaxes, which usually carry coal or grain cargoes of about 60,000 tonnes to 70,000 tonnes, dropped by $137 to $31,619.

The supramax index added 12 points to 2,883.

The weather extremes in parts of the world are raising demand for electricity sharply and the quickest way to respond is to burn more low-grade thermal coal.

Coal futures almost topped $150 a tonne last week, and remain near that level today. $150 is the highest price for coal futures in the past ten years as a heatwave swept across Zhejiang, Jiangsu, and Guangdong provinces of China, Trading Economics said. The heatwave resulted in electricity consumption soaring to “unprecedented” levels in industrial regions even as local supply was limited. Coal futures, however, may abate as the extreme heat that boosted its rise over the past month-and-a-half is likely to cool.

There is also a high amount of uncertaintly in the agricultural cargo market due to extreme weather events this month. A new Jet Stream is slamming summer crops across the globe, bringing with it the threat of further food inflation at a time costs are already hovering near the highest in a decade and hunger is on the rise. Typically a weakening of supply causes bulker rates to slide but the sheer number of weather events this month and port congestion may require more ships to reposition a large number of food products this year.

Growing uncertainty may be in the cards for China. In Shanghai, they are bracing for a new large typhoon after parts of inland China are still digging out of the Henan disaster.

The rise in the index is despite week Iron ore prices that have suffered their worst week for nearly 18 months amid signs that the two factors needed for a sustained correction may be coming into play – Chinese steel producer discipline and recovery in the supply of ore.

Despite a rise in the Baltic Dry Index, dry bulk stocks are having a rough month and the Breakwave Dry Bulk Shipping ETF $BDRY lost over 5% in today’s opening session. CNBC’s Jim Cramer commented on the shipping industry’s week performance on Wall Street this month “I don’t like the shipping stocks here, I think they’re overdone. People got excited about them and it’s no longer the moment to own a shipping stock.”

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