28-12-2016

Baltic Dry Index Winding Up 2017 on a Positive Note

BI

While there was no Baltic Dry Index pricing update on Monday with the markets closed in observation of Christmas, the BDI closed at 961 points on Friday, with the index is up significantly from 478 points it was at one year ago.

There is cautious optimism heading into 2017 with the BDI’s price up significantly from a year ago due to increased demand to transport goods. Through the first part of 2017, the BDI should remain supported by China’s continued infrastructure development, which will increase demand to ship raw materials. There is also some optimism over economic growth in other regions of the country.

When it comes to shipping demand, there could be a slowdown in the second half of the year, but shippers are not expecting the BDI to see a drop-off in demand like it did late last year. That demand collapse resulted in the BDI hitting a record-low price in February 2016.

While demand expectations are optimistic, the major downside risk for the BDI is the oversupply of ships. There are currently too many ships available to hire and that is depressing rates. The oversupply situation was created when a large amount of ships were built during the last economic growth cycle. While these ships were built when economic growth was expected to continue to accelerate, by the time they came in service the economy had collapsed.

Economic growth has now returned, but the rate of growth has not been enough to require all the ships put into service. Shipping companies have been good at accelerating their ship scrapping rates and keeping some boats out of service, but if they see demand continue to grow they may add more boats into service. This is a big risk that the BDI faces in 2017.

Source: Economic Calendar

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