Baltic Dry Index rises 17% in Sept, but provides little reason for cheer

Analysts say spike due to rise in iron ore imports by China; majority view on commodities trade bearish

The Baltic Dry Index has risen 17.5 per cent since September 15, sparking speculation that a recovery in commodities could be around the corner. Since January this year, the index, a measure of shipping costs for commodities, is up 21 per cent at 943.

Analysts say the spike is due to an increase in iron ore imports by China. Iron ore prices in that country have risen 28 per cent since July. While some analysts say China is continuing to buy select commodities, the majority view on global commodities trade remains bearish.

The index, analysts say, is unlikely to witness any major uptrend in the coming months, owing to a bleak outlook for the demand for commodities from China, the world's largest importer of raw materials. "China is the main driver for dry bulk. But with its economic data indicating a slowdown, we continue to remain negative on this index and see it move only in a limited range of 700-1,500 in the coming months," said Bharat Chhoda, senior analyst with ICICI Securities.

"The current marginal uptrend in the index could be because of some temporary vessel congestion and is a short-lived phase. More, in a market in which there is already an oversupply of vessels and 18-19 per cent of the fleet is on order, there is no scope for the index to see any major upside going ahead," he added.

According to China's customs administration, the country's exports declined 6.1 per cent in August in yuan terms, compared to the year-ago period. The fall was less than the sharp drop of 8.9 per cent in July. Imports fell even more sharply, by 14.3 per cent in yuan terms, compared to 8.1 per cent in July.

Vikas Khemani, president and chief executive of Edelweiss Securities, says global growth is slowing, adding there is no structural shift happening in global trade.

Despite doubling from its record low, the index has failed to cheer shipping companies, as they don't see gains of more than 10 per cent in their earnings at such levels. These companies start seeing major benefits when the index exceeds 2,000. The current level of 943 was nowhere close to that, said officials from the sector.

"A lot depends on the spot long-term charter ratio of a shipping company. In the current situation, since Shipping Corporation has more vessels in the spot, the company will gain due to the overall rise in the index," said Chhoda.

"The index might have gone up but overall, dry bulk is the worst performer among all segments," said Sudarshan Shreenivas, analyst with India Ratings. "There is high new capacity coming into this segment when there is no lift in trade," he added.

Meanwhile, the outlook for the Baltic Dirty Tanker index (for crude oil) and the Baltic Clean Tanker index (for petroleum products) is bullish, as these indices record the peak demand season from October. "The tanker segment is doing reasonably well, as a fall in crude oil prices has encouraged countries to stock the commodity, leading to higher engagement of VLCCs (very large crude carriers)," said an official with Essar Shipping.

The Baltic Dry Index measures change in transportation costs of raw materials such as metals, ore, coal, grain and fertilisers by sea. The index had touched 1,222 in August, a 100 per cent rise from its all-time low of 509 in February this year. Though it has come off that level, there has been an uptrend in the past couple of weeks.