Baltic Dry Index – more than a snap-back rally

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The Baltic Dry Index – a measure of freight rates for iron ore and bulk commodities – rose non-stop for 23 sessions until Wednesday, before declining somewhat yesterday. This surge represents a gain of 517% from its low on December 5. But one needs to put this in perspective: the Index fell by 94% from its high in May 2008, and therefore still needs to rise by a further 188% to match the previous peak.

More importantly, this rise seems to be more than a snap-back rally and points to better economic tidings. This becomes apparent when considering the close relationship between China’s Purchasing Managers Index (PMI) for New Export Orders and the Baltic Dry Index, showing both indices turning sharply higher.

baltric-1

Source: Plexus Asset Management (based on data from I-Net Bridge)

Also, the improvement in China’s PMI (with the composite Index back in expansionary territory above 50) and the Baltic Dry Index is consistent with the improvement in the Metals Index. (See my recent post “Secular bull in commodities remains intact“.)

baltric-2

Source: Plexus Asset Management (based on data from I-Net Bridge)

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1 comment to Baltic Dry Index – more than a snap-back rally

  • I’m a perennial fan of the a new decoupling theory. The trouble is that western markets must still be very important for trade in emerging markets. So how can sustainable growth occur if important western economies are so heavily debt hampered?

    What have we had? Six months of commodity inflation and three months of stock price inflation in western markets. I’m not convinced the worst is over.

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