Since the beginning of this year, the Baltic Dry Index (BDI) has shown a sharp upward trend as a whole. On August 13, the BDI closed at 3,566 points, the highest level since mid-2010. From 1,374 points on January 4, 2021 to the current 3,566 points, in just 8 months, the BDI has increased by as much as 160%.
The BDI index is an important indicator of the shipping industry, consisting of several major routes The spot freight rate (SpotRate) is weighted and calculated, reflecting the spot market conditions. The BDI index has always been the freight index for bulk raw materials. Bulk shipping is mainly used to transport steel, pulp, grain, coal, ore, phosphate rock, bauxite and other domestic supplies and industrial raw materials. These raw materials are commodities or raw materials for commodities. Therefore, the operating conditions of the bulk shipping industry are closely related to the global economic boom, raw material prices, and commodity trends.
Talking about the reasons why the index has been rising this year, Chen Zhen, a researcher at Founder Medium-term Futures Research Institute, said that on the one hand, the epidemic has caused port congestion and ship turnover efficiency has dropped significantly. “A new round of global epidemic has broken out. Since mid-July, epidemics have broken out in many places in China. On August 11, confirmed cases of international crew members were found in Ningbo Zhoushan Port. Countries including China have increased the testing of foreign ships and ship turnover. Efficiency has declined.” Chen Zhen said that China is the global import and export center for dry bulk cargo, and China’s epidemic prevention policy plays a decisive role in global transportation capacity turnover. The resurgence of the epidemic in Europe and the United States has led to a shortage of port workers and the collapse of supply chain systems such as inland railways and barges, which has affected the overall loading and unloading efficiency of ports.
On the other hand is the global economic recovery. Since the second quarter of this year, the economies of various countries have gradually recovered, and they have adopted loose fiscal and monetary policies to promote economic development. With the rise of infrastructure in various countries, global demand for iron ore, coal, steel, etc. has increased significantly. Due to the uneven distribution of global resources, there is a large demand for transporting mineral coal from Australia, Brazil, and Indonesia to East Asia, Southeast Asia, and Europe. After countries such as China produce steel, dry bulk ships are needed to transport it to other countries.
“Food is the most important thing for the people. Due to the new crown epidemic, various countries have adopted grain reserve plans. Taking China as an example, the import volume of grain from January to July was 99.175 million tons, and the import volume in the same period last year was 72.302 million tons. tons, a year-on-year increase of 37.2%.” Chen Zhen told reporters.
In addition, July to August is the summer in the northern hemisphere. Extreme temperatures occur in many countries, and the demand for coal increases significantly.
According to a reporter from Futures Daily, there was little growth in shipping capacity in the first half of this year. As of June 30, the total global dry bulk shipping capacity was 928 million deadweight tons, an increase of only 1.5% compared to the end of December last year, which was far lower than the increase in transportation demand.
“Container shipping capacity is in short supply, and carriers are switching to dry bulk shipping.” Chen Zhen said that international container freight rates have risen sharply this year, and the increase has far exceeded that of dry bulk freight, and It is still difficult to find a warehouse, and cargo owners are forced to choose the “consolidation-to-consolidation” method. Currently, 5%-8% of the dry bulk cargo market comes from the container shipping market.
Jiang Xingchun, assistant to the general manager of Soochow Futures and director of the research institute, also said that the sharp increase in sea freight prices is due to the increase in trade volume brought about by the recovery of the global economy, especially since last year. Exports maintained double-digit growth; secondly, demand increased slightly due to insufficient supply of shipping vessels.
As a “barometer” of commodity trends, what impact will the surge in BDI have on commodities?
Chen Zhen said that currently, the international dry bulk shipping market is facing a relative shortage of shipping capacity and rising rental levels, which will drive up commodity prices, mainly reflected in two aspects. : First, the CIF price of commodities increased. CIF price includes cargo price, freight rate and insurance premium. The sharp increase in freight rate has caused the CIF price of bulk commodities to rise. Second, due to the shortage of shipping capacity, bulk commodities cannot be delivered to the importing country in time, resulting in tight supply in the importing country and rising prices.
As iron ore is closely related to the BDI index, why does the recent price trend run counter to the BDI? In this regard, Jiang Xingchun said that the recent sharp decline in iron ore prices is mainly due to the sharp drop in downstream demand and the production reduction of domestic steel mills in order to achieve carbon peak and carbon neutrality.
Looking forward to the market outlook, Chen Zhen believes that in the second half of this year, the international dry bulk shipping market will generally improve, and BDI will have further upward momentum, but volatility will intensify, and the market will be at a high level. .
On the one hand, demand is generally strong. The global economy is expected to grow by 5% this year. The United States has launched a US$550 billion infrastructure bill, and the EU’s economic recovery plan has a total scale of more than 1.8 trillion euros. Countries such as India, ASEAN, Japan and South Korea will also accelerate the pace of construction after the epidemic stabilizes, and the demand for raw materials will continue to improve. The epidemic is not over yet, and the grain reserve plans of various countries will not stop. The Black Sea and North America will usher in the peak season for grain shipments in September. The global grain trade volume is expected to reach 494.62 million tons in 2021, an increase of 16.04 million tons over the previous year; in 2021, the global grain trade volume will reach 494.62 million tons.Carbon seaborne trade volume will increase by 26 million tons, a year-on-year increase of about 2%; global iron ore shipments in the second half of 2021 will be approximately 850 million tons, an increase of 8.4% from the first half of this year; global steel demand in 2021 will reach 18.74 billion tons, a year-on-year increase of 5.8%. China’s crude steel production in the second half of the year will be reduced by 61 million tons compared with the first half of the year. The reduced demand for iron ore is a relatively negative factor.
On the other hand, capacity growth is limited. From 2019 to 2020, shipowners did not build large-scale ships and focused on structural replenishment. Therefore, the overall number of new ship launches in 2021 will be small. According to the current order construction progress, the delivery volume of new ships this year is approximately 30.937 million deadweight tons, which is a significant decrease from the 48.623 million deadweight tons in 2020. The shipping capacity increased by only 3.3% year-on-year in 2020.
In Chen Zhen’s view, the global economy is recovering and demand for bulk commodities will continue to increase. However, the launch of new ships is relatively limited, ensuring the scarcity of shipping capacity. BDI will have Room for further upside. However, shipping is a derived demand from trade and is affected by various factors such as politics, economy, culture, and the epidemic. The mutated COVID-19 epidemic, the Federal Reserve’s interest rate hikes, the economic policies of major powers, and FFA speculation will all affect the shipping market and cause periodic market conditions.
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