Chiming in On the Baltic Dry Index

Everyone is talking about the Baltic Dry Index these days so I figured I might as well chime in. On Wednesday, I actually wrote about the sharp decline in the BDI for my daily report at GFT Forex but since then, the sell-off has worsened.

What is the Baltic Dry Index?

The Baltic Exchange’s Dry Freight Index was once termed, the “Best Economic Indicator You’ve Never Heard Of” by Daniel Gross. This index is closely by all Wall Street Insiders because it is a good indicator of economic growth and production. In a nutshell, the BDI reflects how much it costs to ship raw materials (like coal, iron ore, cement and soft commodities like grains and sugar) by sea. The level of this index is also impacted by fuel costs, fleet numbers and seasonality but if the index rises, it means that demand is generally strong causing other ports to be congested.

Back in August 2007, I looked at the Baltic Dry Index to determine whether commodity prices should continue to rise. Interestingly enough, a full year later, the sharp decline in the BDI illustrates the recessionary conditions that consumers are feeling globally. It also suggests that we could see further losses in oil prices.

Here is a chart 23 year chart of the BDI (white line) against oil prices (orange line). The strong correlation between the two indexes should be clear:

Source: Bloomberg

Source: Bloomberg

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4 Comments

  1. Curious if you know where I could obtain BDI data back before Jan 1st, 2003 other than from the Baltic Exchange itself, which wants my first born to be included with their charges.

    Thanks.

    Reply
  2. Regarding your article on the Baltic Dry Ice index. Which indicator would you say is the leader…does oil prices lead the BDI, thus comodity prices or does the BDI lead later being reflected in the higher oil prices. Reson I ask is if oil is cheap and raw materials are cheap to transport than the increasd demand for oil for the ships will increase oil prices. In Dc 2005 oil was spiking higher while the BDI was dropping. How should I read the correlation? Thank you.

    Reply
  3. Typically the Baltic Dry Index is a leading indicator of commodity prices because it reflects the demand for shipping. If the demand for shipping is strong, then the BDI tends to increase. If it is weak, vice versa.

    Reply

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