The latest uptick of Baltic indices was not only heartening but also imperative

The latest uptick of Baltic indices was not only heartening but also imperative.


By Michalis Voutsinas

"Having spent a good part of the current trading year competing with the splendid 2021 performance, Baltic Dry Index had a first-six-month average of 2279 points – very similar to the one of the previous year. However, July and August had a very different story to narrate. Whilst last year, spot market during these months was full of confidence, reporting strong gains week after week, it kept losing steam one year later, leading to an end-of-August closing of just 965 points this Wednesday." was the opening paragraph of Doric's Weekly Insight twelve months ago.

Fifty-two weeks later, the gauge of activity in the dry bulk spectrum, Baltic Dry Index, balanced at 1080 points on this Friday's closing, just a few points lower year-on-year. However, the path leading to the present value was anything but similar to last year's. Whilst BDI peaked at 3369 points in late May 2022, the general Baltic index managed to touch just 1640 points so far this year. On average terms, the first seven-month of 2022 came in at 2245 points, materially higher than the 1140 points of the current trading year. Whilst shipping industry anticipated a good old stimulus from Beijing following the post-Covid era, modest interest rate cuts and vague promises of support for debt-mired property developers have failed to restore sentiment. Foremost on every investor's and shipping practitioner's wishlist is a desire to see China's government spend again, regardless of the risk of rising debt. Most analysts think the economy needs much more than the 4 trillion yuan China threw at it in the 2008 crisis, and it should go to local governments and banks.

Whilst the capricious Capesizes are still looking for any indication for a large liquidity injection or a generous fiscal stimulus from Beijing, the rest of the pack reported significant gains during August. In particular, the workhorses of the grain trades trended strongly upwards in the last four weeks, ending today at BPI82 TC levels of $13,041 daily or up $4,987 month-on-month. In sync, Supramaxes lay at $9,993 daily, reporting $1,715 gains on a monthly basis. The small and flexible Handies balanced at $9,122 daily on this Friday’s closing, or some 26.8 percent higher month-on-month. In the FFA spectrum, the latest mini rally in the spot market values pushed the forward curves higher as well. Indicatively, the front end of the Panamax curve stands $2,000 above where it was a month ago. Similarly but less intensely, the other curves have also tilted to the upside.

In spite of the improved market sentiment of late, concerns are still running high about the slowdown of China’s property sector. From January to July, the investment in real estate development was 6,771.7 billion yuan, a year-on-year decrease of 8.5 percent. Among them, the investment in residential buildings was 5,148.5 billion yuan, down by 7.6 percent. From January to July, floor space of commercial buildings sold was 665.63 million square meters, a yearon-year decrease of 6.5 percent, of which the floor space of residential buildings sold decreased by 4.3 percent. The sales of commercial buildings were 7,045.0 billion yuan, down by 1.5 percent, of which the sales of residential buildings increased by 0.7 percent. Against this backdrop, China’s real estate climate index landed at multi-month lows of 93.78 points.

With the world’s three largest manufacturers, China, EU and the US being all in manufacturing contraction, China’s property sector not getting into its stride, and the full rate rise impact to come, the latest uptick of Baltic indices was not only heartening but also imperative.

Data source: Doric