Baltic Dry Index – Reasoning for its 34 day collapse:

The record slaughter of shippers continues as the BDIY posts the largest overnight drop of 4.5% in the most recent 34-consecutive day trounce in dry bulk shipping rates. At this point it is not a question of if but when the bulk of shipping companies especially levered ones, start going bankrupt and flood the seas with yet more anchored rusting dry bulk hulls.

First over the past month the Baltic Dry index has been droping through the floor, problem is that the container business has not seem the same kind of drop of, my guess, and it can only be a guess is that there are a number of factor affecting the Baltic Dry Index, first is the massive new vessel build that has begun delivery over the past 2/6 months.  Again, actual numbers are not available, but from the new vessel order (size and type) it is clear that 2010 was the beginning of a massive delivery cycle for new ships from an average of 10-20 a year to around 80.  Rising to 100 vessels in 2011/12.

The report estimates that the dry bulk carrier fleet, currently standing at 7,839 ships with a total capacity of 432 million deadweight tonnes, will grow by an average of 9.5 percent through the end of 2013, up from 6.5 percent annual average growth the previous five years.

Clearly some off this new capacity is replacement capacity.  Bulk carriers have a relatively short life, because of the nature of their cargo transport – the average is around 10-14 years.

More important is that China has stopped buying for stockpiling purpose. The trade surplus earlier in the year was low, at least in part because of a surge in commodity stockpiling which, should be treated as capital investments rather than as imports, but that’s over for now, for several reasons, primarily because storage areas are now full.  For bulk carriers the trend line is returning to its 2009 level.  

For Canada the news is not very good, in fact both Canada and Australia seem to be operating on the basis that the high commodity prices are behind us (at least for this segment of the cycle). Last week alone iron ore spot prices fell 9.4 per cent and Brazil-China freight prices fell 20 per cent. China's trade figures showed iron ore imports fell 14 per cent last month, measured year-on-year, after rising an average 8.4 per cent each month until May.

What is true for steel extends to other metals an natural resources, although China recently purchased large amounts of Uranium to fuel its growing number of nuclear power stations.