The Baltic Dry Index (BDI) – together with its capesize and panamax components - has pulled off an astounding comeback in 2016. From the BDI’s historical low of 290 points in February to the current 900-1000 levels, the index has truly made a dramatic zero–to-hero transition.

Throughout 2016, the index has exhibited a work/rest cycle, like a game of two halves with half time in between. Failure in the first half did not equal a slump in the second half.

The trough in February was its lowest level since its inception in 1985 and the BDI bounced to 400 points in April and gained tractions to 600 levels in June. Then – as if resting during a half time break - the index plateaued for a while, before steadily continuing its climb to the 1,000-mark in November.

Strong demand for iron ore and coal which began to build towards the latter half of the year played the major role in the BDI’s revival as both commodities are so closely linked closely to China’s economic policy and growth.

Earlier this year, Beijing introduced a series of infrastructure stimulus program hoping to keep its economy growing at a rate of 6.5% this year. The infrastructure spending was channeled into property construction, creating sustained demand for industrial metals usage that fueled into the freight market as well.

The market should by now have entered a slumber phase for the seasonal break but the festive mood saw capesize time charter rates record their biggest jump of the week to 1318 or 22.7% day-on-day to 7,114. The increases were not repeated elsewhere and saw supramax and handysize hovering at the same rates since the beginning of the week.

“While there remains an underlying feeling of optimism, it is difficult to get too carried away with such inactivity in the physical market and the holiday season upon us,” said an FIS FFA broker.

Looking ahead, the market in 2017 might again mirror performance of 2016 on the notion that once again, it is all about Chinese demand. With a targeted growth of six-plus percentage points in 2016, China is likely to extend its tried and tested policy of infrastructure stimulus into next year to keep up with the target growth.  

Then again as the Brazilians say, the ball is round and anything can happen. Match or market can go up or down, with an outcome of victory (boom) or defeat (bust). But wait, there is still one option left, a draw or at least gradual, sustainable growth, where progress is kept steady backed by fundamentals, with less room for market shock for the common good of risk-adverse investment. But where would be the fun in that?

Source: seatrade-maritime.com