The Baltic Dry Index Looks To Be On The Run Again

 

Aug. 15, 2014

The Baltic Dry Index has surged over the past week driven by an increase in iron ore production.

Brazil is planning on doubling ore output over the next five years.

As the daily rate increases, expect to see Dry Bulk shippers come off contract and move to the more volatile and rewarding daily rate.

Last year, about this time, the Baltic Dry Index took off due to an increase in demand for cheap coal and iron ore. It looks like the same may be happening again. on August 13th, shipping rates surged ahead 8.2%:

 

Capesize rates jumping 15.7% ($13,677/day)

Panamax rates climbed 9.7% ($5,883/day)

Supramax rates rose 1.9% ($9,004/day)

 

 

(Source: dryships.com)

 

The main driver for this is the ramping up of iron ore exports from Australia and Brazil:

 

Rio Tinto Group and other miners will ship an extra 97.8 million metric tons from Australia, equal to more than 600 cargoes for Capesizes hauling the ore, says Clarkson Plc, the world's largest shipbroker. Brazil will add another 12.4 million tons, the first expansion since 2011, with shipments accelerating in the second half as the weather improves.

 

Brazil is also planning on doubling its iron ore exports to China over the next five years. While the impact to shipping prices won't be felt for a while, it will slowly help to lift the tide of rates:

 

Brazilian mining company Vale SA plans to double its iron ore exports to China within five years, Jose Carlos Martins, the company's head of ferrous metals, told reporters on Thursday…Martins also said the company plans to export about 400 million tonnes of iron ore a year within five years, nearly 50 percent more than the 270 million tonnes it exported in 2013.

 

Higher rates coming

 

Since the fleet increased over the past five years, there has been an oversupply of ships and not enough demand to keep them all occupied. The increase in demand will help to soak up some of the idle ships and idle time, and drive rates higher over the next five years. Analysts predict:

 

Capesizes will earn $12,250 a day this quarter, rising to $21,250 in the final three months of the year, according to data from Clarkson's derivatives brokerage. They'll earn an average of $21,789 in 2014, 53 percent more than last year, and $28,000 in 2015, according to the medians of 23 analyst estimates compiled by Bloomberg News.

 

Most of the fleet is still working off contract, although several companies have the contracts staggered to eventually expire over the next few years, and put more of their ships on to the more volatile, but also potentially more lucrative, day rates.