Eye on Copper and the Baltic Dry Index

We have a couple of call outs that we want to make in commodity and shipping land today that support a view of a sequential acceleration in global economic activity in Q1 2009 from the thralls of the Q4 2008 bottom.

First, as outlined in the chart below, the Baltic Dry Index is in a veritable bull market year-to-date and is up+15%, which is its best start since 1985. The BDI measures shipping rates for dried goods such as coal, building materials, metals, and grains. In theory, a pickup in the BDI should positively correlate with a pickup in end market demand for these goods, which is a leading indicator for a reacceleration in economic activity. Reports suggest that a primary driver in this resurgence in the BDI year-to-date is demand for iron ore from China where inventories are now 22% below their January highs.

Second, copper, or as we like to call it Dr. Copper for its economic predictive abilities, is showing price stabilization in the face of negative global economic news, which we also noted in a 1/6/2009 note entitled “Dr. Copper is Poking Up His Head”. The backdrop of this point today is that while inventory is still increasing in London, it is doing so at a much lesser rate and the price of copper is no longer going down.

Combined, these data points support what the Chinese stock market has already been telling us, which is, namely, that the global economy is likely re-accelerating from its Q4 2008 lows, even if from a very low level.

Daryl G. Jones
Managing Director