BDI no longer a barometer of global economy (Lloyd’s List July 1)

 THE correlation between the Baltic Dry Index and the outlook for the world economy has been broken and is unlikely to return over the next 18 months, writes Marcus Hand in Singapore .

Braemar Seascope research director Peter Malpas said that a year ago, the correlation between the movement of the BDI and the direction of the global economy was “exceptionally high”.

“The BDI was acting as the best leading indicator [of the economy] we had,” he said. This was due to a stable dry bulk fleet, which meant movements to freight rates simply reflected increasing commodities demand on a global basis.

However, the recent mini-boom in dry bulk shipping has resulted in this correlation being lost. Increases in the dry bulk market in no way reflected the health of the global economy at large, Mr Malpas said.

In January this year the Baltic Exchange’s capesize average time charter rate was just over $11,000 per day, compared to around $80,000 per day now.

The jump in capesize represents close to a 800% increase, a rate not reflected in global economic data.

The rise in the dry bulk market has been driven by Chinese import substitution for iron ore and, to a lesser extent, for coking coal. “This does not mean that total consumption has gone up,” Mr Malpas said. “It is a change in the structure of global commodity trading patterns.”

The BDI is not expected to return as a leading economic indicator in the near future. “We believe the correlation will not exist in 2010. It will be affected by the oversupply of ships. You could well see a lot of pressure on rates [next year] due to supply issues,” he said. This would put sharp downwards pressure on the BDI at time when many forecast the global economy should be starting to recover.

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