World trade is as
bad as it has been at any point since the global financial crisis in 2008.
The Baltic Dry
Index, a measure of how much it costs to transport raw materials, in November
dropped below 500 for the first time, and it has kept falling.
The index was as
high as 1,222 in August, and it has fallen 84% from a recent peak of 2,330 in
late 2013.
The index measures
how much it costs to ship dry commodities, meaning raw materials like grain and
steel, around the world.
It is frequently
used as a so-called canary in the coal mine for the state of the global economy
and how well international trade is performing. If the price is low, it
suggests trade is slowing.
Analysts at
Deutsche Bank led by Amit Mehrotra have been watching the fall closely. The
drop has been so bad that ships are being scrapped faster than they are being
built. Here are the main points in a recent note (emphasis ours):
- Total dry bulk capacity declined by almost 1M tons (net) last week as the pace of deliveries slowed and scrapping remained elevated.
- Around 16 ships were sold for scrap last week totaling 1.6M tons. This more than offset 9 new deliveries, translating to a net reduction of 7 vessels.
- Last week's scrapping would represent an annualized pace of 11% of installed capacity, which is almost double the all-time high of 6.3% set in 1986.
- Year-to-date scrapping is up 80% versus same time last year.
It's bad news, as
it means that ship owners expect demand for cargo transport to remain weak long
into the future. And they're generally very good at predicting trends in global
trade.
This graph from
Capital Economics shows just how closely the Baltic Dry index tracks world
trade volumes.
Source: business insider.
22 February 2016
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