dissconnect between baltic dry and CRB

[metalman]

Re: dissconnect between baltic dry and CRB

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.

then why are commodity prices so high?

[nero3]

Re: dissconnect between baltic dry and CRB

then why are commodity prices so high?

I think money printing is fueling speculation in the paper market's and hoarding (just look at JP Morgan in the copper market. I think it can work if there is more demand picking up soon. Unless that happens, I think the prices will go down for these commodities. The rates is so low that it's barely possible to pay food to whatever crew in on those boats. Luckily a lot of the shipping is done on fixed contracts rather than the spot price. In the late seventies you had all these idle boats along our coast (as a result of over capacity after the 73-74 shipping bubble and a weak world economy in the following years. The market did not come back before around 1988. It was simply more profitable to have the boats idle, than to loose money on shipping goods.

[bungee]

Re: dissconnect between baltic dry and CRB

then why are commodity prices so high?

China stockpiling to get rid of some of its excess $$$$?

[touchring]

Re: dissconnect between baltic dry and CRB

China stockpiling to get rid of some of its excess $$$$?

considering that money is free to get in the first place, no commodity is too expensive.

[nero3]

Re: dissconnect between baltic dry and CRB

China stockpiling to get rid of some of its excess $$$$?

I think China is like a bogey man. I think it comes down to the fundamentals. We can innovate. Our education system works. We are not trying to copy someone else. Who is buying Chinese companies to steal their competence? How does a company like Acer compare to Dell? Of course Acer sucks. And what innovation have lenovo had with the thinkpad line after IBM sold it? In a sense the western society allowed itself to get fat and lazy. I think it's likely that there will be a return of supply side economics, where some sector of the economy where debt is low respond very positively and get a bubble that will pull the whole economy out.

[touchring]

Re: dissconnect between baltic dry and CRB

I think it's likely that there will be a return of supply side economics, where some sector of the economy where debt is low respond very positively and get a bubble that will pull the whole economy out.

low debt sector, do you mean the retail industry? walmart, barber shops?

[nero3]

Re: dissconnect between baltic dry and CRB

low debt sector, do you mean the retail industry? walmart, barber shops?

All I can say is that corporate debt to GDP was far worse in 1929.

http://static.seekingalpha.com/uploa...ebt_to_gdp.png

I also think there are sectors as mentioned with no debt, because it's new sectors, like alternative energy. Tech is low in debt. Many of the multinational blue-chip companies are very low in debt. There is not like there is a lot of infrastructure investment going on the US. Who borrowed money last to start a new factory in the US?

[ST]

Re: dissconnect between baltic dry and CRB

CRB and CCI (old CRB) vs. BDI

[Glenn Black]

Baltic Dry Index and Crude Oil

bdi_cl_log.gif

For at least the last 3 years, BDI (Baltic Dry Index) has been correlated to Crude Oil prices, as shown in he graph. Ships run on crude oil. Crews and ship maintenance are basically a constant $/month. If the charters aren't available, the crew is dismissed, ship is docked or anchored someplace, and they wait out the next charter.

[Glenn Black]

Baltic Dry Index and Crude Oil

bdi_cl_log.gif

For at least the last 3 years, BDI (Baltic Dry Index) has been correlated to Crude Oil prices, as shown in the graph (BDI in Blue, Crude in Red) from http://www.investmenttools.com/futur..._dry_index.htm.

As far as I know, the commodity prices, # ships built, etc. is mere speculation and fluff. It's typical mainstream media hype. Ships run on crude oil. Crews and ship maintenance are basically a constant $/month. If the charters aren't available, the crew is dismissed, ship is docked or anchored someplace, and they wait out the next charter.

If you don't get the charter, you're not competitive. The winner of the charter is someone who has costs in control with the lowest multiplier on the cost of crude oil for the $/tonne-km.

[FRED]

Re: Baltic Dry Index and Crude Oil

[ATTACH=CONFIG]3767[/ATTACH]

For at least the last 3 years, BDI (Baltic Dry Index) has been correlated to Crude Oil prices, as shown in the graph (BDI in Blue, Crude in Red) from http://www.investmenttools.com/futur..._dry_index.htm.

As far as I know, the commodity prices, # ships built, etc. is mere speculation and fluff. It's typical mainstream media hype. Ships run on crude oil. Crews and ship maintenance are basically a constant $/month. If the charters aren't available, the crew is dismissed, ship is docked or anchored someplace, and they wait out the next charter.

If you don't get the charter, you're not competitive. The winner of the charter is someone who has costs in control with the lowest multiplier on the cost of crude oil for the $/tonne-km.

We subscribed to BDI and toyed with the data and came to essentially the same conclusion. THe BDI doesn't help us answer the key question: How much of the run up in the price of commodities and oil since Q1 2009 is due to monetary stimulus, rising, demand and hoarding or speculation on one or all of the foregoing? If anything the BDI confuses the issue.

[Sharky]

Re: Baltic Dry Index and Crude Oil

For at least the last 3 years, BDI (Baltic Dry Index) has been correlated to Crude Oil prices, as shown in the graph (BDI in Blue, Crude in Red) from http://www.investmenttools.com/futur..._dry_index.htm.

The correlation hasn't been very good lately, even after taking into account that crude price increases tend to lead BDI.

As far as I know, the commodity prices, # ships built, etc. is mere speculation and fluff. It's typical mainstream media hype.

Brokers like Cotzias track the number of ships built pretty accurately:
http://www.cotzias.gr/index1.html

Here's a quote from their Nov 2010 S&P report. Hard to see how this could be considered "typical mainstream media hype.":

On the other hand continued deliveries of so many new ships that have been added to the active fleet, is a seriously alarming problem that we feel has not been faced with the amount of seriousness and adequate severity. Many new ships almost 2 ½ ships Bulk Carriers have been delivered each day for the whole year with 11 months completed, and that ends up bringing the active fleet over 70 mil tones tallying a massive total 617 mil tones of carrying capacity. There are still pending for the remainder of 2010 (27 days!!!!) 730 ships of 16.3 mil tones that in theory have to be delivered by end of 2010. Of course it goes without saying that most of these will not and can’t be delivered later this year and will be transferred to the already strained orderbook waiting for 2011, where the expected dry cargo ships amount to 1851 ships of a total capacity of 129 mil tones. We are of the considered opinion that there was a significant increase in the world fleet during 2010 and many more analysts feel that this influx of tonnage has “somewhat dampened” the overall positive effects of China’s growing demand.

This dampening has kept the freight market to practically semi-mediocre or at the best case to well above sustainability daily levels, and had we had the same amount of tonnage instead of the +70mil dwt fleet we could have seen freight levels of 20-30% above the actual levels. Cancellations and scrapping are the only effective measures we may use against the overcapacity issues, but unless these ships cancelled or scrapped are tripled in volume, the problem will occur and we will just feel that up to now we would have swept the dust under the carpet… However we feel that the Large ships, namely the Capes and VLOC’s are in for some hard times ahead. Not necessarily “tomorrow”, but surely in the year to come. We are one month away from clearing out 2010 and this year was overall a very good one, all “other things considering”…!!! We feel that China has lead the way forward, has given us some positive demand for cargoes, has generated momentum and has been the steam engine that gave power to the dry bulk markets. Had it not been for China’s constant and insatiable appetite for raw materials, and general imports together with providing the world with a massive wealth of exports, we would be facing a collapsed dry cargo freight market.

It is a factual figure that nearly 80% of all dry bulk cargo shipments are related to the Asian regions. China has already been instrumental for more than 65% of all iron/ore world shipments and the estimate is that China imported more than 650mil tones of iron/ore in 2010. At the same time China's steel consumption and subsequent production is not at a "forte" when compared to other countries so that can leave us some room for future growth in the imported raw material volumes for the years to come.

[dcarrigg]

Re: Baltic Dry Index and Crude Oil

[ATTACH=CONFIG]3767[/ATTACH]

For at least the last 3 years, BDI (Baltic Dry Index) has been correlated to Crude Oil prices, as shown in the graph (BDI in Blue, Crude in Red) from http://www.investmenttools.com/futur..._dry_index.htm.

As far as I know, the commodity prices, # ships built, etc. is mere speculation and fluff. It's typical mainstream media hype. Ships run on crude oil. Crews and ship maintenance are basically a constant $/month. If the charters aren't available, the crew is dismissed, ship is docked or anchored someplace, and they wait out the next charter.

If you don't get the charter, you're not competitive. The winner of the charter is someone who has costs in control with the lowest multiplier on the cost of crude oil for the $/tonne-km.

You're right - there is a minimum price that one can charge and make a profitable run. Still, the run up in capesize vessels is real:

[Glenn Black]

Re: Baltic Dry Index and Crude Oil

I thought the original question was about reasons for the significant and rapid fluctuation in the Baltic Dry Index. I think everyone who looks at the graph I posted can readily see the correlation between BDI and price of crude oil. I suggest this as the main driver.

For the secondary issues affecting BDI, here is my theory:

No doubt that a large number of new ships were commissioned 3 to 5 years ago, before the financial crash, when everyone not itulip-ized assumed that shipments from China and S.E. Asia would double every 5 years forever. Those new ships are now starting to look for charters. They are significantly more fuel efficient than the old ones, and hold more containers, or more tonnes of cargo. Fortunately, interest rates are at an all-time low, so the depreciation and interest charges are not killing the new ones off. There is such a wide gap between the old and new, scrap steel is often the only choice for the majority. The older ships that were well maintained and refurbished on an ongoing basis can still compete -- barely. Today, older ships are constantly searching for their next charter, many willing to do it below "cost" just to get the cash flow. Many do the minimum necessary to stay afloat.

Lloyd's of London and other insurers had a huge problem in the late 60's and early 70's from floating hulks getting insurance then sinking, often mysteriously. In one case of the West Coast of Africa, a deep sea sub was used to find and inspect the sunken ship. It had been insured for the max, and had passed its inspection with flying colours, but the submarine found a painted canvas (camouflaged to look like normal steel hull plate), stretched over a hole in the bow just above the water line. In the storm, the canvas gave way, the hold filled with sea water, and the ship sank with much loss of life. There had been bribes to get a good inspection report so they could sail when they shouldn't have left port. We may expect the same soon if audits and ship registries aren't rigorously inspected and enforced by the insurance industry.

Perhaps a similar, prior example would be helpful. When the 1980's recession hit, thousands of transport trucks in N. America were parked, then cannibalized to keep a few trucks running at minimum cash outlay. When the economy picked up ~1984, there was a massive refitting and scrapping of the old ones, and buying the much more fuel efficient new models to rebuild their fleets. It is now similar for the ships through 2007-2010.

If you have a brand new ship, all the older, low efficiency ships are constantly nipping you at your heals. It keeps the new ones honest, and at minimum pricing. I would suggest this dynamic will cause increased volatility in BDI, changing the multiplier applied to the crude oil price. Any trend line that occurs in addition to the above will indicate the withdrawal or re-entry of marginal ships that are anchored. Watch the health and activity of the ship graveyards, breakup, & scrapping yards in Bangladesh, India, China, Korea, Turkey, etc. This will be the key performance indicator for the fleet.

[Sharky]

Re: Baltic Dry Index and Crude Oil

I thought the original question was about reasons for the significant and rapid fluctuation in the Baltic Dry Index. I think everyone who looks at the graph I posted can readily see the correlation between BDI and price of crude oil. I suggest this as the main driver.

When I look at that graph, what I see is that the price of crude looks like an important driver -- but not the main one over the last quarter or two, as indicated by the significant divergence between the BDI and the price of crude since then.

So, the question is: why the sudden divergence? I've suggested that it's primarily due to the large number of new ships coming into service, and that the new supply combined with reduced demand from everywhere except China has overwhelmed the influence of the price of crude. Do you disagree?