On Sept 6 the Baltic Dry Index, which tracks commodity shipping costs for the London-based Baltic Exchange by surveying 23 different maritime shipping routes throughout the world in order to assess the price of moving raw materials across the ocean, was up over 5 percent to a 52-week high of 1,352, for a weekly advance of nearly 20 percent. The jump is the result of a number of factors, primary among which being the recent increases in Chinese steel production that have spurred demand for shipping vessels. With many economists seeing steel entering a bull market by the end of 2013, this situation could provide for more increases on the index, particularly with the global iron ore trade expected to expand by over 6 percent during that period.
Another factor in the week’s gains on the Baltic Dry is the increasing price of commodities such as corn and soy. The US Department of Agriculture predicts that soy and grain exports will climb towards record levels by the end of 2013. Russian wheat supplies are also expected to lift substantially higher by years end once September’s crops are harvested.
The Baltic Dry measures the cost of shipping by categorizing ships in four different size groups. Capesize ships are the largest to carry iron ore, and costs for those rose this week by nearly 50 percent to $21,793 per day.
Contracts on the cost of hiring Panamaxes, ships that primarily navigate the Panama Canal carrying mostly dry-bulk cargo, are expected to rise some 13 percent compared to the previous week to $10,125 per day. With bulk shipping making the biggest weekly gains since 2009, there aren’t enough Panamax vessels to meet demand, with outstanding orders for new ships equal to about a quarter of the entire existing fleet of ships.
[Image Courtesy of Wikimedia Commons]
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