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Baltic Dry Index Crashes 18% In 2 Days

Tyler Durden's picture




 

We noted Friday that the much-heralded Baltic Dry Index has seen the worst start to the year in over 30 years. Today it got worse. At 1,395, the the Baltic Dry index, which reflects the daily charter rate for vessels carrying cargoes such as iron ore, coal and grain, is now down 18% in the last 2 days alone (biggest drop in 6 years), back at 4-month lows. The shipping index has utterly collapsed over 40% in the last 2 weeks. We are sure this is just a storm in a teacup and that all the hopes and prayers of a global manufacturing renaissance will come true. Cue, "this is not a demand issue, it's an over-capacity issue" excuses in 3...2...1... now where would the container ships get their idea to increase capacity? (hint: central planner-based mal-investment)

 

 

Of course, we are sure the 'lead' that the Baltic Dry seems to have over global macro will be quickly ignored...

 

On potential driver of the price plunge is Colombia's tougher stance on coal exports (via The FT):

The Baltic Dry index is followed closely as a barometer of global trade but Friday’s plunge came in the wake of new environmental rules on ship loading in Colombia, the world’s fourth-largest supplier of seaborne thermal coal.

 

On Wednesday, US miner Drummond halted loading of coal at its port in the country after it failed to comply with the rules. Colombian National Resources, a miner owner by Goldman Sachs, is also reported to have stopped exports because it cannot comply with the new regulations.

 

Colombia, which exports almost 70 per cent of its coal to Europe, has been working on tightening its environmental regulations and last year fined Drummond, the country’s second-biggest coal miner, for dumping material into the sea while rescuing a sinking barge.

 

The new rules stipulate that coal exporters load ships using conveyor belts instead of by barge and crane. Drummond will not be ready to comply with the new rules until March.

 

However, over-stocking remains the major issue (which hints at Q3/4's surprise inventory builds and macro surprise) is anything but sustainable:

The physical steel product prices, along with the rebar futures, in China have been falling continuously since mid of December, thanks to the sluggish downstream demand in winter period and the high financing cost,” Mr Guo said.

 

“More importantly, our figures show that the current iron ore stocks at major mills have been available for 21.5 days of consumption, which is the highest level in two years. All of these result in no incentive from the mills to maintain their purchasing appetite as in the fourth quarter of last year,” he added.

Chart: Bloomberg

 

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Mon, 01/13/2014 - 12:46 | 4327410 undercover brother
undercover brother's picture

Everyone knows the baltic dry index is useless since the invention of teleportation.  

Mon, 01/13/2014 - 12:53 | 4327433 hedgeless_horseman
hedgeless_horseman's picture

 

 

HARPEX shows that container shipping is still dead...

Mon, 01/13/2014 - 12:54 | 4327447 LawsofPhysics
LawsofPhysics's picture

Yes, the sociopaths in charge have long recognized that eCONomies no longer depend on real goods and services being traded.

/s

 

Mon, 01/13/2014 - 13:14 | 4327532 TruthInSunshine
TruthInSunshine's picture

It's due to the Polar Vortex. The cargo ships are all stuck in ice. Dennis Kneale said so.

Mon, 01/13/2014 - 13:26 | 4327577 LawsofPhysics
LawsofPhysics's picture

Just one edit, "the sociopaths in charge have long since recognized that their eCONomy no longer depends..."

Mon, 01/13/2014 - 13:37 | 4327618 Emergency Ward
Emergency Ward's picture

Item from today's ZH FRONT RUNNING: "Diana Shipping (DSX) upgraded to Buy from Hold at Deutsche Bank"

Mon, 01/13/2014 - 14:52 | 4327865 kralizec
kralizec's picture

Somebody wants a pump prior to their dump.

Mon, 01/13/2014 - 17:07 | 4328353 SilverDOG
SilverDOG's picture

LawsofPhysics

 

 

Depends are #1 UPS delivery package in my county and neighboring county.

UPS's economy is !

Mon, 01/13/2014 - 13:05 | 4327500 Wolferl
Wolferl's picture

So you wanna tell me Baltic Dry is meaningless now? Thx for opening my eyes. ;-)

Mon, 01/13/2014 - 13:21 | 4327564 Bunga Bunga
Bunga Bunga's picture

Get over it, economic indicators are only meaningful if propaganda says so.

Mon, 01/13/2014 - 14:20 | 4327762 666
666's picture

I would think some of this is seasonal as well, especially after the fantastic holiday sales period.

Mon, 01/13/2014 - 14:23 | 4327774 Laughing Stock
Laughing Stock's picture

 

 

ZH BDI Hair on Fire Alert

Uh? Just " a wee bit" of seasonaility in dems charts

Move along

Mon, 01/13/2014 - 13:19 | 4327551 Sudden Debt
Sudden Debt's picture

whatever you find on the shores is yours to keep... but how do you take it home...

Mon, 01/13/2014 - 12:57 | 4327464 XAU XAG
XAU XAG's picture

Every country is making things in house ...........nothing to worry about!

 

sarc

Mon, 01/13/2014 - 13:01 | 4327471 XAU XAG
XAU XAG's picture

If this carries on in another 2 weeks it will have dropped 80% and in 4 weeks ..............negative

 

Black swans all over the place

Mon, 01/13/2014 - 15:49 | 4328078 0b1knob
0b1knob's picture

Negative shipping rates?  That's impossible!!!!!!!!!!!!! Oh wait....

http://www.zerohedge.com/news/shipping-rates-go-negative

 

Mon, 01/13/2014 - 14:01 | 4327689 HungryPorkChop
HungryPorkChop's picture

The Baltic Dry Index is only down because they Released The Kraken and all ships are being eated or afraid to sail.

We know it has nothing to do with real trade since the stock market is doing quite well during the past year.  So it must be a legendary creature which is causing this BDI plunge!

Here's a photo of the creature recently spotted off the shore of Greece:

http://1.bp.blogspot.com/-Y7-OwgExy6Q/UTDypnlSOjI/AAAAAAAAA-c/Dk4c0fkT5B...

Tue, 01/14/2014 - 07:31 | 4330136 o2sd
o2sd's picture

The Baltic Dry Index is only down because they Released The Kraken and all ships are being eated or afraid to sail.

I think you may need to rethink your understanding of supply and demand.

 

Mon, 01/13/2014 - 12:46 | 4327411 TheRideNeverEnds
TheRideNeverEnds's picture

Meanwhile the VIX futures are making new multi year lows. 

 

Bullish!

Mon, 01/13/2014 - 12:50 | 4327427 flacon
flacon's picture

Exactly. I just want ONE DAY of sanity in this market. Just ONE DAY. Is that too much to ask for? 

Oh, and Chuck Schumer, guess what? FUCK YOU!

Mon, 01/13/2014 - 12:55 | 4327453 undercover brother
undercover brother's picture

any state that continually elects representatives with no moral center get what they deserve (NY, NV, CA, etc.)

Mon, 01/13/2014 - 15:29 | 4327486 BuddyEffed
BuddyEffed's picture

Looks like you missed an "N" state making a lot of current news for "moral" traffic hazard.

Mon, 01/13/2014 - 12:47 | 4327418 BuddyEffed
BuddyEffed's picture

"now where would the container ships get their idea to increase capacity? (hint: central planner-based mal-investment"

Central planning errs on both sides, overcapacity in ships, under capacity in bridge traffic flow...

Mon, 01/13/2014 - 12:47 | 4327419 NIHILIST CIPHER
NIHILIST CIPHER's picture

Too many eggs in one (Chinese) basket?

Mon, 01/13/2014 - 12:48 | 4327420 Cursive
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Tyler, show us the chart dating back to 2007.  The 2013 peak looks like a mole hill in comparison.

Mon, 01/13/2014 - 12:53 | 4327443 flacon
flacon's picture

Maybe he should show a comparison between the BDI and the SPY. If this surge in the S&P since 2009 looks like a mountain, that's because it is - compare it to the "molehill" of the BDI. 

Mon, 01/13/2014 - 12:51 | 4327421 MFLTucson
MFLTucson's picture

Whats the difference what we are shipping when you can just print money, lie about the employment picture an allow a group of unelected gangsters (Fed Reserve) to prop up a stock market?  We have become a country builtt on deception and propoganda since the Kenyan took office!

Mon, 01/13/2014 - 12:59 | 4327463 BuddyEffed
BuddyEffed's picture

"since the Kenyan took office" ?  Come again?  It's a long bread crumb trail.   Do you even recall who the first 700 billion bailout was done under which set the tone and trend in these matters?  And that's just looking at one crumb on a very long trail.

Mon, 01/13/2014 - 13:04 | 4327493 TeamDepends
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Roosevelt?

Mon, 01/13/2014 - 13:21 | 4327559 kridkrid
kridkrid's picture

Teddy. He got Wilson elected, by design.

Mon, 01/13/2014 - 13:42 | 4327639 Seize Mars
Seize Mars's picture

Important data point. They don't teach that in government school. I wonder why?

Mon, 01/13/2014 - 13:56 | 4327679 kridkrid
kridkrid's picture

It was an interesting election. The winning, 2nd and 3rd place vote percentages were almost identical to 1992. Clinton = Wilson, Bush = Taft, Teddy = Ross Perot. All 3 were within 2% points, if I recall correctly. WW sold his soul for his alma mater. In return, he was asked to support, 1. Federal Income tax, 2. Federal Reserve, 3. US involvement WWI (which didn't exist at the time of the election, obviously... he was merely told to let the grown ups run foreign policy (Wall Street).

Mon, 01/13/2014 - 12:49 | 4327422 frankTHE COIN
frankTHE COIN's picture

The Polar Vortex, is a MoFo.

Mon, 01/13/2014 - 12:51 | 4327424 Winston Churchill
Winston Churchill's picture

Dr. Copper is showing signs of consumptive heart failure as well.

Looks like the Wile E Coyote period is over, and gravity is working again.

Mon, 01/13/2014 - 13:24 | 4327573 Going Loco
Going Loco's picture

"Dr. Copper is showing signs of consumptive heart failure as well."

Huh? Not on my chart. Still in the same range it's been in since April 2013

Mon, 01/13/2014 - 12:49 | 4327426 Schmuck Raker
Schmuck Raker's picture

BTFBDI

Mon, 01/13/2014 - 12:59 | 4327428 TalkToLind
TalkToLind's picture

Cash for tankers, bitchez.  Turn in your old container vessels and receive US gubermint rebates to purchase shiny new ones!  

Mon, 01/13/2014 - 12:51 | 4327431 firstdivision
firstdivision's picture

Chinese New Year

Mon, 01/13/2014 - 12:53 | 4327439 Dr. Engali
Dr. Engali's picture

With the widespread adoption of bitcoin, maybe people are buying virtual product with their virtual currency for their virtual farmville.

Mon, 01/13/2014 - 12:58 | 4327465 texas sandman
texas sandman's picture

And having a virtual good time doing it?  

Mon, 01/13/2014 - 14:12 | 4327733 Rock On Roger
Rock On Roger's picture

Virtually

Mon, 01/13/2014 - 12:54 | 4327454 fonzannoon
fonzannoon's picture

"Columbian National Resources, a miner owned by Goldman Sachs"

I mean holy shit. 

Mon, 01/13/2014 - 13:07 | 4327510 shutdown
shutdown's picture

Wow!  You know what this means?

Go long on revolutions.

Mon, 01/13/2014 - 13:05 | 4327503 GotNuttin'todo
GotNuttin'todo's picture

That's because the great global economy driver, the good ol USA, is becoming self-sufficient and doesn't need all those imports anymore! Got all the shale oil we will ever need. If looks like we are becoming self-sufficient in ore and coal too. Next we won't even need to import any rare earth minerals.

Mon, 01/13/2014 - 13:11 | 4327525 walküre
walküre's picture

Lies, false hope and manipulations everywhere.

The BDI almost doubled from the lows in 2012 because the "recovery story" was believable. Subsequently inventory was build up because all were eager to get ready for that greastet economic feast year 2014 ever!

Well guess what, Cramerites. You were all lied to, you wasted a ton of money that you thought was cheap and you made investments that are never going to pay off.

Burn!

Mon, 01/13/2014 - 13:18 | 4327546 22winmag
22winmag's picture

The end of the beginnging or the beginning of the end?

Mon, 01/13/2014 - 13:18 | 4327549 neptune-klm
neptune-klm's picture

i would like to see a chart back to 2007, can't find one anywhere.

 

Mon, 01/13/2014 - 14:40 | 4327836 walküre
walküre's picture

BDI collapsed pretty much in synch with DRYS or vv.

Mon, 01/13/2014 - 13:38 | 4327609 Blazed
Blazed's picture

BDI

Mon, 01/13/2014 - 13:44 | 4327643 pragmatic hobo
pragmatic hobo's picture

looks better than 2012.

Mon, 01/13/2014 - 13:48 | 4327663 BudFox2012
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Is the BDI the tool it once was for determining economic strength?  I think in 2011 (year?) it crashed below 800, which means carriers were losing money big time just leaving port, and the economy didn't collapse (or should I say, the depression didn't get worse than it is).  I do know at that time there was still a glut of ships from the 2005-2007 era, so that was part of the drop.  I don't know if that is still the case though.  It will be interesting to see how this correlates with other metrics in the coming months, and something definitely worth watching.

FYI, does anyone know what the break-even point is on the Baltic for most carriers?  I've heard everything from 1200 all the way down to 800.

Mon, 01/13/2014 - 14:33 | 4327806 SAT 800
SAT 800's picture

It's closer to 1100 than 800; because inflation has occured everywhere in the real world except inside Bernanke's beard.

Mon, 01/13/2014 - 14:44 | 4327843 walküre
walküre's picture

lots of forward demand pulled the BDI up in 2013

only that 2013 wasn't such a great year and 2014 is been hyped up as the key turn around year for many economies

well, are things turning around? don't see how that's possible unless the spigots are opening wide and far and then we get hyperinflation which isn't improving demand side either

supply side has years and years left to shrink yet which means there's no growth unless it's growing on top of Yeller's ass.

Mon, 01/13/2014 - 14:44 | 4327845 deerhunter
deerhunter's picture

not being familiar with the shipping business I think I read somewhere that ships sitting at dock and not operating degrade quickly. Can anyone fill that in with some more information for me?  Huge expenses to upkeep whether out at sea or not is what I took away from the article. Thanks

Tue, 01/14/2014 - 19:19 | 4332236 SmittyinLA
SmittyinLA's picture

 parked ships grow barnacles and have to be cleaned constantly, a moving ship is much harder to grow on, plus duck space is expensive, even in Somalia. 

Mon, 01/13/2014 - 15:53 | 4328094 Bobportlandor
Bobportlandor's picture

Indonesian President Susilo Bambang Yudhoyono... On Jan. 12 a new rule took effect prohibiting companies from exporting nickel ore and other raw minerals

The goal is simple: “No more ore exports,”

http://www.businessweek.com/articles/2014-01-13/indonesia-to-china-stop-...

Mon, 01/13/2014 - 16:50 | 4328300 Typing Typer
Typing Typer's picture

I think the weather is depressing the cargo business.

Mon, 01/13/2014 - 17:00 | 4328336 25or6to4
25or6to4's picture

Drop in BDI? Baked in the cake. Onwards to Dow at 30,000 !

Tue, 01/14/2014 - 04:14 | 4330038 kurt
kurt's picture

Next time your pressed for time and have to get a smog check on your car, remember that 8 of the largest ships account for more pollution than ALL THE CARS IN THE WORLD.  You see Richey Ritch will NOT be told that he has to reduce HIS carbon footprint. So, suck on his GIANT EXHAUST PIPE little man!

Tue, 01/14/2014 - 12:46 | 4330761 novictim
novictim's picture

The vast majority of ZH readers will not understand the significance of this story.  But don't worry.

Neither did the author. "Cue, 'this is not a demand issue, it's an over-capacity issue'..."

The truth is that this story highlights a demand issue AND an overcapacity issue...which leaves ZH capitalist ideologues scratching their heads. "Does Not Compute...Does Not Compute..."

Sadly, from the ZH perspective, consumer demand is not linked to consumer wages and buying power. ZH logic decouples wages from the capitalist system through a magical agency called: "The Invisible Hand" (Note: not to be confused with reference to Adam Smith who would go batshit crazy to hear of how his observations were being misinterpreted/abused today.)

To ZH free market hipsters, all issues of demand and overproduction are corrected by lower prices and production shifts to increased efficiency. And wages never go down, only up. And standard of living is all about owning an iPhone...you could be starving but that iPhone makes you rich, right?

So ZH readers, brother and sister workers and consumers, do YOU feel that we have a self correcting market that places the needs of the workers/consumers ahead of profit? Are you that stupid?

Here is the real story: Global demand must fall as the wage cycle spirals downwards towards subsistence. Globalization accelerates this inevitable process. As wages fall, demand falls at a greater rate than price corrections leading to both low demand and overcapacity to produce and gluts in goods and resources. Only socialistic interventions...as is ongoing in Germany, Sweden...as was the case under FDR in the 1930s... allow for the REDISTRIBUTION of wealth back into the hands of consumers. And only this process of REDISTRIBUTION can kick start the global economy as it sputters and fails.

But why do I bother with you folks?

Wed, 01/15/2014 - 02:55 | 4333397 Woodhippie
Woodhippie's picture

"But why do I bother with you folks?"

 

My sentiments exactly.

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