Newsroom Blog
Bulking up on gloom
By Lloyds List Comment
Wednesday 3 February 2010
OUTSIDE shipping circles, the Baltic Dry Index has garnered a considerable fan club as a leading indicator of world trade. Well, the bad news is that the composite yardstick for the health of the bulk trades is currently down a full 42% on the 2009 high of 4,661 recorded as recently as last November.
Only last month, Cosco boss Zhang Liang predicted that the dry bulk outlook this year was improving, and suggested that the BDI would consistently find itself in the 3,000-4,000 range. This has already been exposed as a bad call. As of Tuesday, it stood at just 2,691.
Nor does the gloom stop there. There is talk in the Far East that the Chinese banking regulators are about to slam on the brakes in the face of what is looking increasingly like an asset bubble on the mainland.
Several banks have been ordered to increase reserve ratios by either 50 basis points or, in the case of Industrial and Commercial Bank of China, a full percentage point.
This move alone will lock up billions of yuan in available funds. Chinese companies are feeling the pinch and the Shanghai Composite Index is down over 10% since the start of the year.
Oh, and did we mention massive overtonnaging? Projections from broker ICAP earlier this week estimate that 1,400 bulk carriers of 10,000 dwt-plus will be delivered this year. We make that 116 a month. At no point last year did the tally top 60.
The best guess is that anybody in the dry bulk sector expecting to see rapid reversal of last year’s depressing climate is in for a disappointment. It may even be an uphill struggle just to stop things getting worse.
Those seeking to hang on to their sanity should remind themselves that dry bulk is notoriously volatile, and that in the long run, the China story is still a persuasive one.
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