Baltic Dry Index Driven to Three-Month High on China’s Insatiable Commodities Appetite

The Baltic Dry Index is continuing its positive momentum, and on Wednesday added 12 points to reach 1050 as shipping hire rates have climbed to three-month highs on soaring demand for commodities from China.

Capesize rates have surged in recent weeks due to an uptick in demand for iron ore from China as higher margins have boosted domestic steel output while the potential for a crackdown on emissions later in the year is attracting more Chinese buyers to the commodities market.

This is somewhat atypical for the BDI, which usually goes through a summer lull and then rallies in the fall due to restocking campaigns, but right now China is in restocking earlier than usual, and as a result, the BDI is behaving like it would later in the year, climbing on increased demand.

Iron ore demand should continue to accelerate towards fall, but a slowdown could result as China starts to curb the production of some materials to meet emissions reduction targets. The clamp down on emissions will increase in the winter when pollution peaks as coal is burned to generate the electricity needed to heat homes.

But, for now, the BDI’s strength should continue. Commenting on the BDI’s latest rally, Allied Shipbroking noted that the recovery appears to be sustainable this time around as the commodity has taken a break from its usual trading patterns.

While August should be a dull period for the BDI, with China’s commodity appetite strong enough to break that typical pattern, it says a lot for where the BDI could end up in the fall. But, it is important to note that even while the BDI is rallying – it is more than 10,000 points below its record high, and much closer, relatively, to its record low of around 290 points.

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