The Index has now risen for the 11th week running. At first sight, that seems to signal a recovery in global trade volumes.
But its recent gain isn’t a sign of an oncoming economic recovery. Rather, it’s the direct effect of a cause that we’ll explain soon.
The chart below shows the BDI (black line) from mid-2006 to date. Its volatile history is clear to see. It hit a record high in mid-May last year, and then spiralled downwards by 90% as the economy went into tailspin.
Its enjoyed a 400-point boost over the past month, bringing it to $2,544, in line with the levels seen just ahead of the shipping boom three years ago (circled).
The Baltic Dry’s recent gain isn’t a sign of economic health
Source: Stockcharts
But this recent rally doesn’t signal a broad recovery in global trade. It has been fuelled by China buying huge quantities of undervalued commodities to build strategic reserves. China imported record levels of iron ore from February to April this year, with 50 million tonnes in April alone. This was driven in part by cheap spot ore prices - they’re at four-year lows.
The BDI’s levels are largely a reflection of buoyant Chinese demand. But this won’t hold up. There is far too much iron ore at major ports in China, and limited demand. Seatrade Asia predicts that the current boost to BDI will start to slide from May through to the end of the year.
So, don’t misconstrue the index’s current levels as another ‘green shoot’ of recovery.
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