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Baltic Dry Index: Poking up its head

We have commented on the Baltic Dry Index in the past (“Shipping Capacity Available: on September 29th, 2008) and while many of the financial media’s talking heads are no longer focused on it given the dramatic decline of commodities and shipping stocks over the last few months (remember the Fast Money crew only talks about stocks that are going up!) We have noticed that the Dry Bulk Index is starting to poke up its head up.

There is probably no better gauge for global commerce than the Baltic Dry Index. The Index value is determined through a canvassing of brokers every day and asks how much it would cost to book various cargoes of raw materials on different major routes around the globe. As we stated in our post on September 29, 2008:

“Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index is also seen as a good economic indicator of future economic growth and production, termed a leading economic indicator because it predicts future economic activity.”

While in the longer term pricing for ship capacity is at least partially driven by supply and demand of ships, so an influx of new ships will negatively impact prices, in the short term a fluctuation in the Baltic Dry Index is a function of the demand, or lack thereof, for the transportation of raw materials.

On the margin, and that is where things happen, an increase in the Baltic Dry Index suggests that global economic activity is increasing even if from a low base.

Chinese equities anyone?

Daryl G. Jones
Managing Director