dissconnect between baltic dry and CRB

[charliebrown]

bdi_crb.gif
Sorry I can't get the picture to look nice. Here is the link. http://www.investmenttools.com/futur..._dry_index.htm

Commodities correction comming?

This time it's different??

Can anyone offer some interpretation.

[lektrode]

Re: dissconnect between baltic dry and CRB

[ATTACH=CONFIG]3725[/ATTACH]
Sorry I can't get the picture to look nice. Here is the link. http://www.investmenttools.com/futur..._dry_index.htm

Commodities correction comming?

This time it's different??

Can anyone offer some interpretation.

wow.... nice find! tho i'm not sure eye like the looks of that... the last time that index fell off like that was....
2008?
ok - whats the iTulip Braintrust make of this??

[Sharky]

Re: dissconnect between baltic dry and CRB

The BDI is down in part because a bunch of new ships, ordered at the peak of the BDI in 2008, are now coming into service. Another factor is cancellations from shippers in Queensland, due to the flooding there.

[FRED]

Re: dissconnect between baltic dry and CRB

[ATTACH=CONFIG]3725[/ATTACH]
Sorry I can't get the picture to look nice. Here is the link. http://www.investmenttools.com/futur..._dry_index.htm

Commodities correction comming?

This time it's different??

Can anyone offer some interpretation.

It's very significant. The correlation between the BDI and commodity prices has been very strong until the 2009 reflation. We're working on getting the raw data from balticexchange.com for our own analysis. The CRB minus the BDI equals inflation. That implies that most of the rise in commodity prices since early 2009 is currency depreciation not demand, whereas in the 2006 to 2008 period it was more balanced between demand and currency depreciation.

[Sharky]

Re: dissconnect between baltic dry and CRB

Interesting article on Bloomberg today:

Freight Rates Tumbling as 35 Miles of Ships Passes Ore Demand
http://www.bloomberg.com/news/2011-0...al-demand.html

At a time when analysts anticipate record profits for the biggest mining companies and a third year of gains in commodity prices, shipping lines carrying raw materials are set for the lowest freight rates since 2002.

Leasing costs for capesizes, 1,000-foot-long ships hauling iron ore and coal, will drop 34 percent to average $22,000 a day this year, according to the median in a Bloomberg survey of eight fund managers and analysts. The last time that happened, China’s economy, the biggest consumer of the minerals used in steel and power, was 75 percent smaller and the benchmark Standard & Poor’s GSCI commodity index 67 percent lower.

While Clarkson Plc, the world’s biggest shipbroker, expects seaborne trade in the two cargoes to exceed 2 billion metric tons for the first time this year, the 7 percent increase won’t be enough to eliminate a glut. About 200 capesizes, spanning some 35 miles end-to-end, will leave shipyards this year, expanding the fleet by 18 percent, the Bloomberg survey showed.

“The market was able to take a punch in the face in the form of 200 capesizes and loads of smaller vessels last year but I doubt it will manage another punch without having to hit the deck,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo who correctly forecast in July that rental costs would more than triple by the fourth quarter.

Rates averaged $34,913 a day in the final three months of 2010, 33 percent more than in the previous quarter. Tariffs are already plunging, dropping 7.7 percent today to $11,900, the lowest rate since Jan. 8, 2009, as ships leave yards in China, Japan, the Philippines and South Korea, according to data from the London-based Baltic Exchange, which publishes assessments for more than 50 shipping routes.

Dry Ships

The Bloomberg Dry Ships Index of 12 shipping lines has yet to fully react, declining 0.3 percent by 1:52 p.m. in London today. Prices in the shipping market are more volatile than stocks and bonds, with rates moving 10 percent or more in 32 weeks last year.

While about 90 percent of global trade moves by sea, according to the Round Table of International Shipping Associations, the slump in rates is being caused by a vessel surplus not a contracting world economy.

(continues)

[jk]

Re: dissconnect between baltic dry and CRB

It's very significant. The correlation between the BDI and commodity prices has been very strong until the 2009 reflation. We're working on getting the raw data from balticexchange.com for our own analysis. The CRB minus the BDI equals inflation. That implies that most of the rise in commodity prices since early 2009 is currency depreciation not demand, whereas in the 2006 to 2008 period it was more balanced between demand and currency depreciation.

i don't think you can say that given variations in shipbuilding [which understandably tracks bdi but with a lag]. i think a better indicator of inflation would be the difference in crb [or retail sales for that matter] and the cmi.

[zoog]

Re: dissconnect between baltic dry and CRB

The BDI is down in part because a bunch of new ships, ordered at the peak of the BDI in 2008, are now coming into service. Another factor is cancellations from shippers in Queensland, due to the flooding there.

[jk]

Re: dissconnect between baltic dry and CRB

so new orders for ships peaked in '07, the bdi peaked in '08, ship deliveries are still rising because of the lag from order to delivery. this is NOT a static system. bdi vs crb is not a simple function of inflation.

[zoog]

Re: dissconnect between baltic dry and CRB

so new orders for ships peaked in '07, the bdi peaked in '08, ship deliveries are still rising because of the lag from order to delivery. this is NOT a static system. bdi vs crb is not a simple function of inflation.

Yes I agree. A couple other data points according to RS Platou reports:

• New ship building prices peaked in 2008 and then fell 40%, more recently recovering about 10%. The low prices have caused an uptick in orders (not yet shown in the data I used to make the chart). Preliminary data shows about 80+ million dwt for 2010 vs 46 million dwt for 2009.

• New ship deliveries have been significantly delayed; only about 60% were delivered on time in 2010. Some percentage of the remainder have been canceled. The rest of the delays appear to be a combination of experienced shipbuilding firms slowing their delivery rates in a poor market, and small inexperienced shipyards struggling to deliver as promised.

[nero3]

Re: dissconnect between baltic dry and CRB

Can anyone offer some interpretation.

I suspect that the fundamentals for these commodities are starting to deteriorate as China tighten. I think the BDI shows a disconnect between commodity speculation fueled by money printing and the fundamental demand for these commodities.

[don]

Re: dissconnect between baltic dry and CRB

I suspect that the fundamentals for these commodities are starting to deteriorate as China tighten. I think the BDI shows a disconnect between commodity speculation fueled by money printing and the fundamental demand for these commodities.

Will ZIRP hot money go elsewhere? And if so, where?

[nero3]

Re: dissconnect between baltic dry and CRB

Will ZIRP hot money go elsewhere? And if so, where?

I suspect a commodity crash would boost profit margins in US companies and boost the dollar. Clearly commodities can't be hot if demand from China is not there. As after 1929 weaker commodity prices followed a crashing US stock market down, but there was never a commodity boom in the 1920's. After a commodity boom, it's normal for US stocks to boom. That's why weak commodity prices is good not negative for the US now. After 2000 it would had been terrible. It's just a matter of question to when the secular bear-market in the US is over, it could be over now, it could be over in 2009, it could be over in 2017.

[don]

Re: dissconnect between baltic dry and CRB

Great thread- thanks, guys!

[jk]

Re: dissconnect between baltic dry and CRB

here's ritholtz coming to the same conclusion as several of us, i.e. "baltic index overwhelmed by new ships"

http://www.ritholtz.com/blog/2011/01...-by-new-ships/

[nero3]

Re: dissconnect between baltic dry and CRB

here's ritholtz coming to the same conclusion as several of us, i.e. "baltic index overwhelmed by new ships"

http://www.ritholtz.com/blog/2011/01...-by-new-ships/

Had the demand for shipping been similar to back when the shipping rates were in a bubble, I'm sure rates would had been much higher than they are now, at least 4000 in the BDI. It's of course many new ship's, but it's something else as well, like lack of demand.