What hard landing? Chinese bulk trade barometer surges to 3-year high

The seaborne iron ore and coal trade continues to defy Chinese bears.

The once obscure Baltic Dry Shipping Index came to prominence at the start of the Chinese-led commodity supercycle around a decade ago.

The London-based Baltic Exchange tracks the cost of moving commodities along more than 50 routes around the world.

With China’s emergence as the dominant trading economy in the world the index became one of the go-to barometers.

China now controls the global trade in just about every commodity including iron ore (representing over 70% of the seaborne trade), copper (42%), coal (47%), nickel (36%), lead (44%) and zinc (41%).

What hard landing? Chinese bulk trade barometer surges to 3-year high

On Wednesday, the overall Baltic Dry Index jumped by 2.5% to 2,237 points, continuing a surge that kicked off in September.

The index is showing a 220% improvement from 2013’s opening levels after falling to 25-year lows in 2012 on a dip world trade and too many new ships taking to the water.

Of the freight rates tracked by Baltex, those for Capesize ships provide the best insight into the health of the Chinese economy.

Capesize vessels can haul roughly 160,000–180,000 tonnes and are the dominant vessels for the world’s 1.1 billion tonnes seaborne iron ore trade.

Iron ore is second only to the seaborne crude oil trade and represents close to 25% of global dry bulk cargoes with coal a close second. More than 35% of mined iron ore is shipped, while only 12% of global coal production is carried by sea.

China’s imports of iron ore in November were 77.8 million tonnes, up 12% from the previous month and a new all-time high.

Coal imports reached 290 million tonnes for the January – November period, up 15% from last year.

The surge in iron ore trade has translated into a massive boost for daily earnings for Capesizes, the largest ships tracked by the index.

Capesize daily rates came within shouting distance of the $40,000 level on Wednesday. That’s a five-fold increase from last year’s average of $7,400 a day..

While the gains for Capesizes are certainly impressive considering daily rates have recovered from below $4,000 in June 2012, it is still a far cry from the height of boom.

Capesize rates topped out at an eye-watering $234,000 in June 2008, while the Baltic Dry reached a record of 11,790 in May 2008.

Baltic Dry Index - Dec, 2003-2013

Vale’s fleet of 35 supersized 400,000 tonne vessels, still not allowed to dock in China, does not appear on the radar yet.

Front page image by mark brake