Baltic Dry Index Outlook

In today’s blog we share a comment made by VRS Research Team and our Chief Technical Analyst Spyridon Vasileiou on the outlook of the Baltic Dry Index.

“…Baltic Dry Index has recovered rather swiftly from its early 2020 steep sell-off. As we can clearly see from the above Figure 1, BDI was in a precipitous decline already weeks before COVID-19 started to spread out of China. BDI had peaked in late September 2019 at 2518 and lost -84% of its value to its May 14th low at 393! As we can see from Figures 3 & 4, there is an overall correlation between BDI and Chinese equities (a proxy for Chinese growth and exports).

The rally off the spring 2020 lows is nonetheless attributed to China’s opening-up its plants and production after a two-month hiatus. The initial surge of BDI to its early July high (at 1956) was tracking the Shanghai Composite Index (SSEC) rather closely. After a double-dip in August/September, BDI is climbing again. As it is weighted in 40% Capesize, 30% Panamax and 30% Supramax (a total of 20 routes are calculated) BDI is a good indicator of global trade and a proxy for dry bulk shipping stocks as well as a general shipping market bellwether. Its price levels are closely correlated with what is going on in the Far East/China and therefore a good gauge of pending economic activity. We must be reminded that even before something is produced raw materials need to be purchased and shipped across the globe for production to happen. But how do we know that higher BDI levels are surely attributed to real production happening? We do not. When combining BDI with China’s output and exports we then can confirm the positive outcome. Otherwise, any movement of raw materials could be related to plain re-stocking of inventories. As we mentioned earlier that BDI rally off the May lows was confirmed by a good rally in Chinese equities. Therefore, we can firmly say that the BDI surge was for real and rhymed well with China’s return to production in Q2. We need to keep an eye on both BDI prices and output levels/exports out of China for clues…”

Figure 1: Baltic Dry Index (BDI) – Daily Prices as of October 9, 2020 (since July 2015)

Figure 2: Baltic Dry Index – Weekly (2009 – Oct 9, 2020)

Figure 3: BDI vs. SSEC – Monthly (2003 – Oct 9, 2020)

Figure 4: BDI vs. SSEC – Weekly (2003 – Oct 9, 2020)