August 20, 2014
The Baltic Dry Index (BDIY) – which tracks the movement of the average prices of shipping goods by sea – has seen a revival in the last month. The index had slumped 67.8% since the beginning of the year, recording a low of 723 points on 22 July. It has since made a comeback, however, having sharply risen to 1,040 points – up 38.3% since the start of August.
Iron ore producers blamed unfavorable weather for the lower production in the initial months of the year, which caused a drop in the demand for shipping. The decreased demand compelled shipping companies to operate at lower capacity (running their ships half-empty at times), which resulted in lower revenue per voyage.
The revival of the Index is a testament to the strengthening global economy, with increasing prices the result of greater demand for shipping in the last month. Analysts believe that the shipping price increase is largely driven by iron ore shipments.
The three companies that dominate the global production of iron ore – Rio Tinto plc (RIO), BHP Billiton Limited (BHP) and Vale SA (VALE) – announced an increase in iron ore production in their second-quarter operational reviews.
BHP Billiton said second-quarter iron ore production was 56,643 kt, 19% more than production at the same time last year, and 15% higher than in its first fiscal quarter.
Page 1 of 2
Shipping stocks rally as Baltic Dry Index hits 4-month high
Shipping Corporation, Mercator, G E Shipping,Chowgule Steamships, ABG Shipyard and Bharati Shipyard are up 1-10% on BSE.
Shares of shipping companies have rallied up to 10% on the bourses after the Baltic Dry Index hit four-month high on Wednesday.
The Baltic Dry Index touched 1,061, its highest level since April 9 2014, has rallied 47% from its recent low of 723 touched on July 22, the Bloomberg data shows. The index has risen nearly over 40% since the start of August.
Shipping Corporation of India (SCI), Mercator, G E Shipping and Chowgule Steamships are up 1-9% on the Bombay Stock Exchange (BSE). While ABG Shipyard (up 10% at Rs 255) and Bharati Shipyard (up 5% to Rs 35) also rallied by over 5% each.
The Baltic Exchange’s Shipping Indexes are widely followed by analysts, money managers, shipping companies and investors because they provide benchmark rates for transporting dry bulk commodities such as iron ore, coal, and grain across water.
Higher shipping rates are generally positive for shipping companies’ revenues, which will positively affect earnings, cash flows, and share prices.