The Baltic Dry Index had a
wild year in 2016, plunging to a record low of 290 points in February amid
concerns that China’s economy was headed for a hard landing, and then
recovering as the country moved to boost its economy by implementing stimulus
programs.
China’s stimulus programs
included infrastructure development that boosted demand for seaborne raw
materials. In addition, unexpected upside came from increased demand for coal
imports as the country cracked down on domestic production. While the recovery
was volatile, the BDI is closing the year just shy of 1000 points.
The BDI’s recovery has
largely been a result of increased demand, but data also suggests that
accelerating ship scrapping rates have contributed to the upside. Containership
scrapping progressed in 2016 with 201 vessels accounting for 699,000 TEUs sent
to the scrapyard over the course of the year, according to data from Braemar
ACM. The acceleration in scrapping rates was due to low charter rates.
While rates remain low, they
have recovered over the course of the year and going into 2017 shipping market
participants are cautiously optimistic. The caution stems from the concern that
if hire rates increase significantly, scrapping rates may stall and/or more
idled ships may be put into service, depressing rates.
A major drag on the BDI has
been the oversupply of ships. The world is awash with ships because ship
building accelerated during the last economic expansionary cycle, and these
ships came online once the global economy cooled. Even though the global
economy has, overall, improved, supply is still above demand, and with many
ships competing for cargoes hire rates remained depressed. As long as there is
an overhang of ships the BDI has no hope of coming close to its record high of
11,793 reached in 2008.
Source: economic
calendar. 29 December 2016
http://www.economiccalendar.com/2016/12/29/baltic-dry-index-market-buoyed-in-2016-by-increased-demand/
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