The Baltic Dry Index (BDI), for April tumbled 286 points to 1,341 month on month (m/m), a 27% decline, and currently averages 1,363 thru May 22nd. Changes on an m/m comparison can be exhibit wild swings as was the case in April. Looked at on a three month moving average, (3MMA) comparison the BDI fell 3.5% to 1,133 m/m. On a 3MMA year on year basis, (y/y), the BDI was 8.6% higher. The BDI has averaged 1,205 over the past 12 months, ranging from a low of 759 in February 2017 to a high of 1,555 in December 2017.
The BDI is a shipping and trade index created by the London-based Baltic Exchange that measures changes in the cost to transport raw materials. The Baltic Dry Index offers a forward view into global supply and demand trends. A rising index can indicate a strengthening global economy. A contracting BDI index signals a slow-down.
The BDI includes three component ships: Capesizes, Panamaxes and Supramaxes. Capesize ships are the largest at >100,000 dead weight tons, (DWT). Capesize vessels make up 10% of the world fleet but account for 62% of dry bulk traffic. Panamaxes account for the vast majority of steel and its raw material freight, they weight in the range of between 60,000 to 80,000 DWT. Panamaxes account for 19% the world fleet and 20% of dry bulk traffic. Supramaxes (35,000 to 59,000 DWT), make-up 37% of the world fleet and combined with the smallest Handyman vessels (15,000 to 35,000 DWT), which account for 34% of the world fleet tally the remaining 18% of dry bulk traffic. Handymaxs are not counted in the BDI index.
Figure 1 shows the 3MMA for both Capsize and Panamax indexes. These volatile indexes had both been trending higher since early 2016 until this month. The Capsize (BCI), 3MMA fell by 4.0% in April m/m, and down 65.5% y/y to 578.
The Panamax (BPI), 3MMA also decreased m/m to 1,448 or negative 13.9% m/m and was up 21.2% y/y. Demand for the medium sized Panamax vessels is currently outpacing demand for the larger Capesize vessels which are commonly employed to ship iron ore and coal. The recently announced tariffs on steel and aluminum by the Trump administration is apparently influencing the BCI. Tariffs could slow global trade which would mean less ocean going freight and falling BDI prices.
At Gerdau we regularly monitor the Baltic Dry index since it is a leading indicator of demand for goods on a global scale. An increasing BDI signals stronger global trade which can be good for domestic business if the transactions are fairly traded.