Baltic Dry Index slips below 1,000 points, may impact Indian shipping firms

The Baltic Dry Index (BDI), a key indicator of freight rates which gauges the cost of shipping dry cargo — mainly commodities such as iron ore, cement, grain, coal and fertiliser — has been falling for eight consecutive days sinking under the 1,000-point mark to 956 points on Friday, May 19. This could have an adverse impact on Indian shipping companies.

The BDI index is a composite of four sub-indices that measure different sizes of ships (dry bulk carriers) classified on the basis of their total cargo capacity, namely Capesize, Panamax, Handysize and Supramax. Compiled by the London-based Baltic Exchange, the index is based on a daily survey of agents all over the world.

The BDI hit a temporary peak on May 20, 2008, when the index hit 11,793 while the lowest level ever reached was in February last year, when the index dropped to 290 points. Since then, the index kept rising steadily until it again dropped to 735 points in February 2017. Although it has recovered since then hitting 1,333 points on March, 28, it has been falling for the past one month.

Analysts suggest that the falling index might indicate lack of demand for commodities like iron ore and coal from the main consumer - China, coupled with celebrations of the Chinese New Year. Oversupply of vessels in the shipping industry could be another reason.

“The level of BDI seen now is a very subdued level. It happens because there is an excess supply while the demand is growing at the normal pace,” an analyst with ICICI Securities told BusinessLine . “So, you might see temporarily spurts in the rates for various reasons, be it temporaryincrease in demand for coal, or disruption on the route — all these increase the rates”. Stocks of India’s major shipping companies such as Shipping Corporation of India (SCI), Great Eastern Shipping Company Limited (GE Shipping) and Essar Shipping, that operate in the segments covered by the BDI index, have been falling since the end of April. SCI and GE Shipping were not available for comment. Essar Shipping spokesperson pointed out that the Baltic Capesize Index, one of the sub-indices, on the contrary, has been on the rise. “There has been some lull in market due to Japanese and European holidays last week but market has again picked up,” the company spokesperson noted.

He, however, referred to an industry report dated May 12, before the overall BDI index started falling. The Baltic Capesize Index (BCI) has fallen from 1,725 points on May 12 to 1,590 on May 17, bounced back to 1,669 on May 19 as the rates recovered as the week drew to a close according to Baltic Exchange’s latest Bulk report. A year back, India Ratings (Ind-Ra) in its overview of the shipping industry, said the dry-bulk would be the worst-performing segment among all the shipping segments in FY17. “The slowdown in emerging and developing economies, particularly in China, has exacerbated the demand-supply mismatch in the dry-bulk segment,” the agency noted then.

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