Wednesday, February 04, 2009
Wednesday, 04 February 2009
Recent rise of Baltic index likely reflects the start of the new lunar year. The long-suffering shipping industry has been on a minor roll for the past two weeks, but you can credit that more to the vagaries of the Chinese character than a renewal of world economic growth. The Baltic Dry Index, an indicator of shipping prices, climbed 22.7% in the last two weeks. It is up 52.9% since the beginning of December, but for past year, the index is off 82.5%. That steep fall puts any recent increases in context.
Chinese New Year is the likely explanation, according to the chief executive of the company that runs the gauge of shipping costs.
Jeremy Penn, chief executive of the Baltic Exchange, said the index’s recent firming resulted from a rush of orders for materials like iron ore and steel ahead of the week-long holiday last week. He said while this increase can not be ignored, it should be seen in context of the larger losses the index has suffered the last 12 months.
“One has to be cautious and see the index in terms of short-term market effects rather than anybody signaling 'Great it's all over,'" he said. “What you have to remember is that after a long period of a boom, freight rates have bumped along a bottom."
Some investors in recent weeks have bought into shipping stocks by looking at the dipping of the Baltic Dry Index.
Penn said it will take a week or two for the Chinese New Year-effect to play itself out, but he wouldn’t say whether that means the index would continue its climb or settle down.
A research note from JP Morgan said the Baltic Dry Index has been pushed up because of the iron ore trade and anticipation that China will need more of the material as it ramps up its internal economic stimulus package.
The index "is a China property and infrastructure story,” according to the note. JP Morgan added that about 77.0% of the largest, Capesize vessels have been employed to ship cargo to China since last month, and that about half the steel used in China is for properties and infrastructure development.
Last week, Prime Minister Wen Jiabao of China indicated that the country's economy might be improving (See "Premier Wen Says, 'Don't Worry' "), although he said on Monday that the world economic crisis has not yet passed.