New Sustained low for Baltic Dry Index?

[Glenn Black]

BDI-Crude_110803.png

The Baltic Dry Index (BDI) tells us the average price to ship cargo on the high seas. WTIC is West Texas Intermediate Crude Oil price. The ratio of these two should show the health of the international shipping.

Once you have bought a ship, the operating costs are the crew and the Bunker C oil to run it across the water. If you can't get a cargo, you lay off the crew, and just have your overhead costs to pay. If you get a cargo, hopefully the price you can charge will pay for the crew, the fuel consumed, and the overhead/maintenance/depreciation on the ship.

BDI has been highly correlated to crude oil prices for some time. In the graph above, we see that the BDI has again dropped to as bad at it was in the economic meltdown of Nov. 2008.

This means very competitive rates, far below the sustainability point. This is good news in the short term if you must ship goods, but bad news if you are in the shipping business. Who will blink first? It won't be long before these shipping companies eat through their cash reserves, and start selling older ships for scrap metal.

Is world ship tonnage far in excess of what is needed? Has international shipping dropped like a stone?

[flintlock]

Re: New Sustained low for Baltic Dry Index?

I was considering dipping into the shipping market, but I just can't see the light at the end of the tunnel yet.

[GRG55]

Re: New Sustained low for Baltic Dry Index?

...Is world ship tonnage far in excess of what is needed? Has international shipping dropped like a stone?

Rising crude/bunker fuel prices, a global economy that is still overdependent on government stimulus sponsored FIRE sector activity [requires no ships, just an internet connection and some first class airline seats for the Goldman/JPMorgan/UBS/Credit Suisse bankers to make their pitch in person], worldwide structural unemployment pressing down on consumption, and a surfeit of ships ordered during the salad days before the financial crisis when the global economy was going to grow to the moon.

When credit is cheap and abundant the world ends up with too much of "everything". Just ask GM and Chrysler...

Anybody surprised?

[aaron]

Re: New Sustained low for Baltic Dry Index?

Rising crude/bunker fuel prices, a global economy that is still overdependent on government stimulus sponsored FIRE sector activity [requires no ships, just an internet connection and some first class airline seats for the Goldman/JPMorgan/UBS/Credit Suisse bankers to make their pitch in person], worldwide structural unemployment pressing down on consumption, and a surfeit of ships ordered during the salad days before the financial crisis when the global economy was going to grow to the moon.

When credit is cheap and abundant the world ends up with too much of "everything". Just ask GM and Chrysler...

Anybody surprised?

The bankers will just crash the oil prices, then load up tankers full of oil cheaply. Then park them at sea.
Probably the same can be done with coal and other stuff too. These ships will be used.

[GRG55]

Re: New Sustained low for Baltic Dry Index?

An article from the UK's Daily Mail previously posted from a couple of years ago...

The ghost fleet of the recession anchored just east of Singapore

Last updated at 1:18 PM on 16th September 2009

The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination - and is why your Christmas stocking may be on the light side this year...

[lektrode]

Re: New Sustained low for Baltic Dry Index?

...The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination - and is why your Christmas stocking may be on the light side this year...

they might be just at a convenient parkin lot on their way to bangladesh?

this topic (the BDI) is one of my fave indices

posted yest on: http://www.itulip.com/forums/showthr...bout-To-Go-Pop

from: http://www.bloomberg.com/news/2011-0...t-markets.html

Demolitions of supertankers, which carry about 20 percent of the world’s oil, are slowing as ship owners accept unprofitable rates rather than write off assets, creating the industry’s biggest glut in 29 years.
Scrapping vessels, each the size of the Chrysler Building, will drop 19 percent to 2.8 million deadweight tons of carrying capacity this year, according to London-based Clarkson Plc, the world’s largest shipbroker. The fleet will expand 7.5 percent to 176.7 million deadweight tons, the most since 1982, as demand for seaborne crude advances 2.8 percent, the broker estimates.
Owners are effectively paying clients $1,037 a day to charter vessels on the industry’s benchmark route in the single- voyage market, the first negative rate since at least 2008. Frontline Ltd., the biggest operator of the ships, needs $29,700 to break even. Unprofitable voyages may still be preferable to the $22.5 million that BW Maritime Pte Ltd. estimates owners would lose by scrapping tankers five years earlier than the standard lifetime of about 25 years.
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Tanker Index

Frontline will report a loss of $17.13 million this year, compared with net income of $161.4 million in 2010, the mean of 19 analysts’ estimates compiled by Bloomberg shows. Shares of the company fell 64 percent since December, compared with a 34 percent decline in the Bloomberg Tanker Index (TANKER), whose six members also operate smaller vessels such as aframaxes and suezmaxes. Supertankers carry about 2 million barrels of oil, suezmaxes about half of that and aframaxes about 690,000 barrels.
Shares of Frontline fell 8.1 percent to 54.75 kroner as of 4:27 p.m. in Oslo trading, and earlier reached 54.60 kroner, the lowest since July 2003.
Ship owners are also facing the prospect that demand will weaken as economic growth slows. The U.S., the world’s biggest consumer of crude, will expand 2.5 percent this year, compared with 3 percent in 2010, according to the median estimate of 66 economists’ estimates compiled by Bloomberg.
U.S. seaborne crude imports will drop 4 percent to 6.9 million barrels a day this year, the lowest since at least 1999, according to Clarkson. Oil imports into China, the engine of the global recovery, fell 8.6 percent to 19.7 million metric tons in June, the lowest since October. About 90 percent of global trade moves by sea, according to the Round Table of International Shipping Associations.
Oldest Vessels

Crude traded in New York will average $96.41 a barrel in the fourth quarter and $97.71 in the first three months of next year, compared with $95.28 now, according to the median estimate of as many as 32 analysts surveyed by Bloomberg.
Scrapping jumped 47 percent to 3.45 million deadweight tons last year as the slump in rates encouraged owners to demolish their oldest vessels. All of those were tankers with hulls made from a single layer of steel. The European Union says they are more accident prone than the latest double-hulled ships.
Single-hulled supertankers now comprise 4 percent of the fleet, compared with 20 percent at the beginning of 2010, limiting the potential for more scrapping, according to Chappell, who previously worked for JPMorgan Chase & Co.
Accidents involving single-hulled ships from the Exxon Valdez off Alaska in 1989 to the Erika off France a decade later spurred governments to agree on an International Maritime Organization ban that began in 2010 and will be phased in over five years.
Storing Oil

About 78 percent of oil tankers are demolished in Bangladesh, the United Nations Conference on Trade and Development estimates. The global fleet of supertankers consists of 567 ships, according to Clarkson.
One alternative to scrapping ships may be converting them into what are known as floating production, storage and offloading units, used offshore to process and store oil. Demand for such conversions is strengthening because oil discoveries are being made offshore, George Saroglou, chief operating officer of Tsakos Energy Navigation Ltd., told investors on a conference call July 28. The Athens-based company has three supertankers in its fleet, data on its website show.
The cost of a 5-year-old double-hulled supertanker was last at $80.88 million, compared with as much as $162 million in 2008, Baltic Exchange data show.
“In these poor market conditions, you would normally expect a significant exodus of ships,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo whose recommendations on the shares of shipping companies would have earned investors 22 percent in the past year. “There’s no real scope for that now, and that is a headache owners will have to deal with through continued weak rates.”

[touchring]

Re: New Sustained low for Baltic Dry Index?

I was considering dipping into the shipping market, but I just can't see the light at the end of the tunnel yet.

Ask Aaron about his trip to China before making a decision. Half of all the ships in the world are destined for Chinese ports.

[Revert2Mean]

Re: New Sustained low for Baltic Dry Index?

The global economic collapse is now accelerating. Most people live in an economic environment they neither understand nor gain from. Speculators sowed the seeds of their destruction by bidding up asset values until every idiot out there was convinced prices can't drop back to past levels, and resources can't run out. A new global recession is a certainty now. The stimulus that kicked the can down the road is no longer working and the price we pay will be much worse as this economic mess finally collapses.

[Southernguy]

Re: New Sustained low for Baltic Dry Index?

Well, I see a discrepancy here: BDI prices are tanking, which sugests a slowing of global economic activity. However, commodity prices (and I am not thinking of silver, palladium, etc) are still on very high levels, be it metals like copper or iron ore or agricultural as soybeans, corn, etc.
From which reasoning that BDI situation has more to do with specific aspects of vessels production-destruction-needs than with global economic situation. At least so far. Of course I see a very deep world economic crisis happening soon.

[zoog]

Re: New Sustained low for Baltic Dry Index?

...Is world ship tonnage far in excess of what is needed? Has international shipping dropped like a stone?

I don't have full 2011 data yet, of course, but I took a pass through the July 2011 report from RS Platou. The short version is that shipping tonnage remains pretty steady or even slightly increasing, but a continued overhang of previous new builds and ships in layup being reactivated has put downward pressure on rates. For example, as of July 2011, container box rates from Asia to Europe are down ~50% from last year's high.

[touchring]

Re: New Sustained low for Baltic Dry Index?

I don't have full 2011 data yet, of course, but I took a pass through the July 2011 report from RS Platou. The short version is that shipping tonnage remains pretty steady or even slightly increasing, but a continued overhang of previous new builds and ships in layup being reactivated has put downward pressure on rates. For example, as of July 2011, container box rates from Asia to Europe are down ~50% from last year's high.

Looks to me like oversupply.