Recent Downtrend is the Right Direction towards a More Balanced Market

The Baltic Dry Index continued to trend south over the past two weeks settling at around 2,420 pts from around 2,810 pts previously. It is clear that the shipping market is on its way to cool off a little bit from its previous very high and probably unsustainable levels.

In our previous blog, a couple of weeks ago (May 27th), we mentioned the following:

“… we should not underestimate the fact that with all this inflationary outlook surrounding the global markets (unfolding of economic recovery, launching of stimulus packages, and high commodity prices among other things), the government and economic authorities will have to act sooner or later, as conditions may change fast, and take some of the “air” out of the system with the aim to deter further inflationary pressures. …

… with this perspective in mind, someone should expect the shipping market in the form of the Baltic Dry Index to continue retreating towards more rational levels reflecting further normalization of the global economies and the efforts of economic authorities, meaning central banks, to take a first step in curbing inflationary pressures. …”

Whereas in our blog as of May 13th, we also noted the following:

“… Nobody can exclude the likelihood of a further upside but in the longer run markets and in this case the shipping market has to orbit around more balanced and sustainable levels compared to the ones currently traded by the very bullish indeed market participants. …”

All in all, there is nothing really much more to say at this phase, but only to add that the recent downtrend has led to a more balanced market condition but not rational enough. We would tend to anticipate that there will be some continuation in this short-term move that will lead the Baltic Dry Index further down for the simple reason that the Index has deviated substantially from its historic average levels and also because most “good” factors are already priced in if not exhausted in the current price levels.

FIGURE 1: Baltic Dry Index (BDI) – 1 Month up to June 9th, 2021

[Bloomberg ticker: BDIY:IND, BDI Baltic Exchange Dry Index]

Source: Bloomberg, Trading Economics

FIGURE 2: Baltic Dry Index (BDI) – 1 Year up to June 9th, 2021

[Bloomberg ticker: BDIY:IND, BDI Baltic Exchange Dry Index]

Source: Bloomberg, Trading Economics

FIGURE 3: Baltic Dry Index (BDI) – 5 Years up to June 9th, 2021

[Bloomberg ticker: BDIY:IND, BDI Baltic Exchange Dry Index]

Source: Bloomberg, Trading Economics