BDI plunged 7.26% yesterday!

The Baltic Exchange Dry Index ('BDI') dropped a whopping 7.26% or 326 points to close at 4163 point, yesterday. The sharp drop in BDI is very clear sign of a slowdown in the global economy. Sham Gad, writing for TheStreet.com, noted that "...China, the 800-pound gorilla, which seems to be losing its appetite for commodities. At the end of August, iron ore inventories sitting in Chinese ports increased to 70 million tons, the highest level this year."

The present turbulence in the financial market could however prove to be a positive for dry bulk shippers as it helps to tackle one of the biggest concerns facing the group, i.e. the new supply of ships that are coming on board over the next three to four years. At one count, the number of ships contracted to be built over the next few years stood at 10,000. Now, it looks like many of them will not be built due to the tightening credit and lending markets. Morgan Stanley estimates that over $22 billion in ship orders could be canceled in the next few years. Given the time lag to construct a new ship, any supply constraints could lead to a rebound in shipping rates.


Chart: Baltic Drybulk Rates' daily chart as at September 25, 2008 (courtesy of Investment.tools.com)

The plunging shipping rates would be negative for shipping companies, such as Maybulk, Hubline & Sweejoo, while the cancellation of shipbuilding contracts may impact local shipbuilders, such as Coastal Contracts as well as companies providing marine engineering works.