The Baltic Dry Index of freight costs (for iron ore, grains and coal) follows changes in global demand for bulk shipping. As such, it is an important leading indicator of future economic activity, and chemicals demand.
The blog first noted Index movements in October 2007, when this was accurately forecasting the H1 2008 boom. In May 2008, the Index then began a 90% fall that preceded the H2 collapse. Now, as shown in the chart above from Bloomberg, it is again flashing a warning light.
The Index bottomed last October, as companies cut back on inventories ahead of year end. But it then moved up sharply, before the seasonal weakness in Q1 (when shipping conditions are poor). But in the last month, its rally since March seems to have collapsed. The Index is now back at the October lows.
The FT notes that “the fall in freight rates reflected a gloomier outlook for the global economy“. An analyst with ICAP, the broker, added that in their view “the Chinese are tightening seriously. We’re not very positive on the short-term global outlook“.
3 thoughts on “China’s slowdown hits shipping market”
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So the far eastern producer nations are predicting lower growth on demand in 6 months. What we don’t know is of that is factoring in the economic restraint fit to really bite in 2011 or whether that will have a multiplying effect on the demand for goods and services. Do you think this Will be a quarter of pain Jan to March next year or something longer and nastier?
Simon
The Baltic Index is based on actual freight movements, so what it is telling us is that orders have fallen sharply. Its not a forecast, but simply reflects an over-supplied market. Some of this is probably also due to a surplus of new ships on the market, which has helped to drive down prices. But all the key indicators in all the main regions – housing, autos, employment are all pointing downwards. My own view, for what it is worth, remains that we will not see the bottom of the cycle before 2012, and that the bad part of the downturn is about to hit us.
China is so HUGE at the moment that whenever it encounter minor problems it can affect whole industries.