BDI 'anchoring' shipping concept is expected to get out of the trough

As a weathervane, the trend of Baltic Dry Bulk Freight Index (BDI) is often highly correlated with the performance of shipping sector in A-share market and iron ore, coal and fuel oil in commodity areas. At the time of BDI hitting a new high of more than five and a half years recently, the shipping sector has not come out of its expected performance, while the prices of iron ore and threaded steel have repeatedly reached new lows. Analysts said that the recent rise in BDI was mainly driven by the rise in cape-type ship freight rates. Recent depressed prices of some industrial products are mainly related to their own fundamentals. The A-share marine sector has recently shown signs of bottoming up after adjustment. Considering that BDI is closely related to the recovery of industrial demand, future shipping stocks and derivatives investment can still be expected against the background that BDI will continue to rise. The rise of BCI leads to the recovery of BDI.

BDI is weighted by spot freight charges of several major routes. It measures the transportation costs of iron ore, cement, cereals, coal and fertilizers and other commodities. It is called the "wind vane" of the global economy. The operation status of bulk shipping industry is closely related to the prosperity and decline of global economy and raw materials market. BDI index can be regarded as the leading economic indicator.

Wenhua financial data show that after more than two weeks of adjustment, BDI has rebounded from a low of 1712 on August 7 to 2213 on August 27, a new high since December 2013.

"The recent rise in BDI is a normal repair after a short adjustment, but the growth rate has slowed down significantly compared with June-July." Zhu Hao, iron ore analyst at the East Securities Derivatives Research Institute, said. Yang Jiaming, a researcher of CITIC Futures Asphalt Fuel, believes that the main driving force behind the recent rise in BDI is the Baltic Cape Index (BCI), which has a scale of 80,000-175,000 tons and is generally used to transport coal and iron ore. The recent rise in Cape ship freight is the main reason for the rise in the index. In the long term, dry bulk carriers account for the largest proportion of ship dismantlement in recent years, while new orders for dry bulk carriers remain at a low level. IMO (Regulations for Reducing Sulfur Content in Fuel Oil) will inevitably lead to an increase in ship fuel costs, further increase in the number of dismantlements, and capacity contraction will be an indisputable fact. Brazilian Mine After the Australian hurricane, iron ore shipments in the two countries gradually returned to normal, demand-side gradually recovered, and there are signs of recovery after the shipping industry experienced a trough these years. As a leading economic indicator, BDI is often highly correlated with the performance of iron ore, coal and fuel oil in the shipping sector of A-share market and commodities. Recently, BDI has deviated from it. On August 28, major contracts for iron ore, threaded steel, coking coal and coke futures hit new lows, falling by 20.65%, 11.9%, 4.01% and 9.41% respectively since the second half of the year.

"Recently, there are some big problems in the basic aspects of industrial products. With the expectation of no speculation in housing, the market generally expects that demand for black-line products will be weak in the second half of the year, and the negative impact of macro-disturbance events will continue. The reason for the rise of BDI is that the recovery of industrial supply side will further depress the prices of related industrial products, such as iron ore. Zhu Hao said.

Yang Jiaming believes that, generally speaking, a large number of iron ore shipments on behalf of ships only need strong demand, leading to an increase in domestic imports, which constitutes a negative impact on iron ore prices, but overall, the BDI index is closely related to the recovery of industrial demand. The relationship between the two can be positive or negative, and the specific situation needs specific analysis.

Wind data show that as of August 28, the A-share maritime index rose only 0.01% in the second half of the year. Although the overall performance of the A-share shipping sector since the second half of the year is not good, since August, the shipping index has shown signs of bottoming up; in terms of constituent stocks, COSCO Haineng (01138 Hong Kong shares), Merchants Shipping, COSCO Haite, Ningbo Shipping and other stocks have also shown a more significant rebound trend. Previous reports issued by Haitong Transport Team indicated that the dry bulk transport market in the second half of the year would be affected by three factors: traditional peak season, desulfurization order supply and iron ore replenishment stocks, but the core logic of each stage is different. If the three factors form a resonance, the peak season market may be maintained for 3-6 months.

Yang Jiaming also indicated that the BDI probability will continue to rise in the future, and we can pay attention to shipping stocks and derivatives investment.