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Obscure 'Baltic Dry Index' Soars. And You Care, Why?

Today, The Ticker revisits one of its favorite obscure economic indicators: The Baltic Dry Index, or BDI, which just had its best month ever.

We first mentioned the BDI in this story in The Post in February.

In case you missed that, the BDI is a measure of shipping costs for commodities. Simply: It's how much the big cargo ship companies can charge for what they haul -- coal, wheat, metals and so on.

The 265-year-old index soars upward when the global economy is humming, because shipping companies can raise their prices, as the demand for cargo ships outweighs the supply. It rose every day in May.

During a recession, when no one's buying things and no one's producing things, cargo ship companies are desperate for business and can't charge as much to use their ships. The BDI goes down.

The BDI peaked near mid-2008 then fell off a cliff as the economy collapsed during the fall and winter, bottoming out at the end of last year. It ticked upward until crashing again -- along with the markets -- in late February and early March. Since then, it's been a steady climb, though it now stands at less than one-third of its 2008 peak.

Naysayers discount the recent BDI surge, because it has come largely from the climbing rates shipping companies are charging for the massive and in-demand "capsize" ships, which you can see by clicking here. (They were named "capesize" because they were too big to go through the Suez Canal, so to travel from ocean to ocean, they had to go around South Africa's Cape of Good Hope and South America's Cape Horn.)

The recent surge in the BDI has been caused by the increasing number of capesize ships carrying iron ore to China.

Critics say that China is buying ore to hoard and stockpile, not to produce things. So an increase in the BDI doesn't necessarily equate to an increase in production and a return to economic growth. Once China's stockpiles are restocked, say the critics, the BDI will go back down and therefore cannot be seen as a sign of true economic growth.

But here at The Ticker, we believe that if China is buying ore, well, China is buying ore. That means they're paying dollars to companies that produce ore and to companies that haul ore. And when the economy does recover, China will use the stockpiled ore to produce things that are sold to other nations -- and hauled there on ships. Then, China will need more ore, which also comes on ships.

So we're bullish on the Baltic Dry Index, which turns out to be an economic indicator that is not nearly as cold and as dry as its name would suggest.

-- Frank Ahrens
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By Frank Ahrens  |  May 29, 2009; 2:56 PM ET
Categories:  The Ticker  | Tags: Baltic Dry Index, China, shipping  
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The Chinese are a lot more strategic than the US in their thinking. They are buying at lower prices, they are stockpiling, they are shedding increasingly worthless dollars and they are putting themselves in a position where even in an upturn they will be able to control the market because of their stockpiles. The US may well make use of those countless shipping containers to house their homeless. Successive US governments have done nothing but to shame the enlightened men who gave it nationhood and the decent folk who fought for liberty in their own land. The US needs to default on its impossible debt otherwise the nation will be drained and then destroyed. There is no honour or future in increasing deficits and more borrowings.

Posted by: psouleles | May 29, 2009 9:18 PM | Report abuse

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