It has soared nearly three times in five months

Against the background of slowing global economic growth and uncertain trade situation, the Baltic Dry Bulk Index (BDI), an important economic indicator of shipping industry, has risen sharply in recent years. The Baltic Dry Bulk Index closed at 1725 points, down 0.9%, ending its 16-day rise since June 14. The index rose 28% last week, its best weekly performance since 2014.

Why did such a roller coaster market emerge in the international shipping market when the quotation plunged by more than 40% at the beginning of the year? How long will the sustainability of this rally last? The prosperity of the shipping market is often closely related to the fluctuation of the world economy. The Baltic Dry Bulk Index reflects the spot freight changes of several major routes in the world.

In February this year, the Baltic Dry Bulk Index fell for 13 consecutive days, reaching a minimum of 595 points, hitting a two-year low due to the decline in overall demand and the Chinese Spring Festival holidays.

The Baltic Dry Bulk Index has risen sharply recently, but since the second quarter, boosted by the strong recovery of freight volume in Australia and Brazil, the two major exporters, the Baltic Dry Bulk Index has continued to rise and returned to the $1,000 mark in mid-May. According to ship tracking and port data compiled by Refinitiv, Australia's cargo export volume reached 77.9 million tons in May and 76.8 million tons in June after a short period of export weakness from March to April. The daily average of more than 2.5 million tons reached a new high since December 2017, after the impact of bad weather on the country's cargo transport was weakening. Brazil's exports of goods reached 30.6 million tons in June, a marked rebound from 16.5 million tons in April and 23.5 million tons in May. Considering the average level of 32.2 million tons last year, Brazil still has considerable potential. On the other hand, the shortage of new capacity in the market leads to the intensification of supply capacity tension. Vessels Value, a shipping industry research institute, reported that global orders for new ships fell to an all-time low in the second quarter of 2019. Mainstream ship types, including the three major ship types, were almost at the bottom of the line, and the new shipbuilding market was once again facing a severe situation. Among them, orders for new bulk carriers fell 73% year-on-year, and oil tankers and container ships also fell more than 40%. The Baltic Dry Bulk Index includes Capesize, Panamax and Supramax, with weights of 40%, 30% and 30%, respectively. Among them, the cape-type vessel has a load of more than 100,000 tons. It is mainly used for long-distance transportation of industrial materials such as iron ore and coal. The Panamanian-type vessel has a load of 60,000-80,000 tons. It mainly transports grain and sugar and other people's livelihood goods. The super-convenient vessel has a load of 50,000-60,000 tons, and mainly transports cereals, fertilizers, cement and other products. Over the first half of the year, global orders for new ships plunged by nearly 50%. Many factors led to a bull market.

First Financial and Economic Journalist consulted weekly reports of the Baltic Exchange and found that the demand for iron ore, grain and other dry bulk cargo is rising significantly in the near future. The average daily rent of a cape-type freighter was reported at $25822 on the 8th, down 2.6%, still at a high level since September 2018. Iron ore, which accounts for one-third of the demand for cape-type freighters, has become the main factor driving the quotation of cape-type freighters. Influenced by the dam break in Brazil's Valley at the beginning of this year and the impact of tropical cyclone on Australia's iron ore producing areas, global iron ore production is expected to decline significantly. Valley is expected to reduce production by nearly 40 million tons in the whole year. Australia's iron ore export volume may decline for the first time since 2001. As a result, international iron ore prices may decline for the first time since 2001. Ge has risen all the way and set a five-year high. At present, 62% of Prussian iron ore prices are trading around $115, up nearly 75% in the year.

The recent strong demand in Asia, especially in China (total port stocks fell to 153 million tons at the end of June, down nearly 30% from the same period last year) and high iron ore prices are stimulating exporters to increase their competition for the current tense shipping capacity. The weekly newspaper noted that Brazil's Brucutu Iron Mine, owned by Vale Valley, resumed production on June 22 after a successful appeal, and that the country is increasing its iron ore exports to compete with Australia. In addition, the export of iron ore in the Black Sea region has further increased the inadequacy of cape-type shipping capacity in the Atlantic route. Jon Chappell, an analyst at Evercore ISI, said that given that the journey from Brazil to China is three times that from Australia to China, the more heavily loaded Cape cargo ships are becoming increasingly popular. The average daily rent of Panamanian freighters was reported at $13534 on the 8th, continuing to set a new high since October last year. The North Atlantic trade in goods has increased significantly since the second quarter. Last Monday, a Panamanian-type freighter quoted $22,000 from Mormansk, the largest port city in the Arctic Ocean, to Julflesfer, Morocco, last week, which led to an increase in the price of Panamanian-type freighters on the Pacific route. The average daily rent of super-handy freighters was reported at $9542 on the 8th, returning to the high level in March 2018. The U.S. Gulf Area (Port Auckland, etc.) and Mediterranean coastal ports have become intensive trading areas. Market quotations show that freight rates from the United States to Europe and the Asia-Pacific region are generally in the range of 20,000-22,500 U.S. dollars per day, while those of the Mediterranean coastal ports range from 11,000 to 13,000 U.S. dollars. The relative demand in the Asia-Pacific region is weak, with quotations ranging from 6,000 to 7,000 U.S. dollars. It needs to be pointed out that food is the leading factor in exports from the United States. US Department of Agriculture data show that nearly 1 million tons of soybeans and grains are being shipped to Asia.