EGLE

BDI Speculation: Beware the Unwinding of Congestion/Inventory Build

06/29/2009 by Research Reloaded

After a relatively quiet week for dry bulk shipping rates (for things like iron ore, coking & thermal coal, and grains), I thought it was useful to report Mr. Charles de Trenck's recent words on Baltic Dry Index (BDI) speculation. The BDI has held up lately, but has been helped by continuing port congestion and Chinese port inventory build. To me, it seems the BDI above 4000 likely requires these factors to continue and as they are likely unsustainable, as Transport Trackers reiterated, "chasing the BDI above 4000 makes no sense". In the short term, the BDI can go anywhere, but odds are stacked against you in the current environment. For example, see my recent piece in regards to declining steel and seaborne iron ore trade this year, which is a major headwind the BDI faces in 2H09 especially after the spectacular growth of the bulk shipping fleet in the recent shipping boom.

BDI speculation: We exited the BDI rebound above 4000 in early June, and all we have seen in recent weeks are speculative and volatile commodities’ moves. In other words…froth. And this even though there were too many Capes sucked into China congestion (ie, the ramp up in China congestion in recent months). We continue to think select cargo cover charters can offer opportunities, while chasing BDI above 4000 makes no sense

40% of Domestic Chinese Ore Producers Could Close

06/24/2009 by Research Reloaded

UNCTAD has forecast that as much as 40% of Chinese domestic iron ore product could close down in the coming years due to rising costs locally, and lower freight costs internationally having made seaborne iron ore more competitive.

The agency’s annual report on the 2008 iron ore industry forecasts what it called a “great Chinese shakeout” resulting in widespread mine closures and even greater reliance on imported iron ore — a key driver of demand for the bulk carrier freight market. “It is probable that between one third and one half of Chinese iron ore capacity will close over the next three years, with 40%, or 130-150m tonnes, being the most likely reduction figure,” the report said.

This could be a nice balancing mechanism for seaborne iron ore shipping rates, since if rates sky rocket, then less domestic producers are likely to close, but if rates fall, more domestic producers close down, removing domestic Chinese iron ore supply and thereby adding to seaborne demand. I have tried to find the original UNCTAD report which Lloyd's List quoted, but don't have the time to dig around their site. If someone has a link, would love to see it. Thanks. Anyhow, continuing...

Baltic Dry Index - Over 4,000 is Blind Speculation

06/08/2009 by Research Reloaded

Transport Trackers came out with a research note in regards to the BDI's recent ascent to 4,000. Predicting the BDI is a bit of a fool's game, and they do not try to do so. Yet they still make it clear that betting on the BDI beyond 4,000 is pure speculation since dry bulk vessel oversupply risks continue. Can it break 4,000? Sure, especially given that it's an index of spot rates as we have previously explained. But Transport Trackers' ex-Citi Head of Asia Transport Charles de Trenck recommends that prudent capital refrain from further BDI upside speculation. The recent 6.9% one-day drop shows just how quickly this index can turn.

Look at Supply: In 2H09 and into 2010 vessel supply, regardless of delays and cancelation discussion/debates, should bring back concerns of too many bulk ships. We are not against looking at certain long‐term contracts backed by cargo. But from this point on in current cycle, we are against blind speculation on BDI moving above the 4000 level.

Syndicate content