The Glimmer Of Hope As Baltic Dry Index Soars

The Baltic Dry Index soared yet again!

Commodity Shipping Index Advances the Most Since at Least 1985

• Alistair Holloway and Alaric Nightingale
  
  Feb. 4 (Bloomberg) -- The Baltic Dry Index, a measure of shipping costs for commodities, rose the most since at least 1985 in London as the number of idled capesizes fell to almost zero, indicating strengthening demand for iron ore.
  
  Capesize rates have risen more than ninefold from a record low of $2,316 a day on Dec. 2. Steelmakers may be replenishing stocks in China after they fell 22 percent by mid-January from a record in September. Producers abroad, faced with an oversupply of iron ore, may also be shipping ore to China for storage.
  
  “This has been the first day of the year when the buzz has been back,” Michael Gaylard, strategic director at Freight Investor Services Ltd., a shipping-derivatives broker, said by phone from London. “There’s no doubt that enquiry for physical tonnage is consistent and strong.”
  
  Shipping rates collapsed last year as demand slumped for steelmaking raw materials and Japan, the U.S. and Europe grappled with their first simultaneous recessions since World War II. The steel industry accounts for almost half of all dry-bulk cargo at sea, according to shipping line Golden Ocean Ltd.
  
  The Baltic Dry Index advanced 168 points, or 15 percent, to 1,316 points. The gauge’s 70 percent gain in 2009 is its best start to the year since at least 1986. It fell as low as 663 points on Dec. 5, the lowest since 1986, and rose to a record 11,793 points on May 20.
  
  Daily rates for capesizes rose 17 percent to $21,810 a day, the highest since October. Smaller panamax ships, the largest to fit through the locks of the Panama Canal, increased 14 percent to $8,005 a day. Daily operating costs are $6,500 for capesizes and $5,000 for panamaxes, according to Erik Nikolai Stavseth, an analyst with shipbroker Lorentzen & Stemoco in Oslo. Both ships compete to haul coal and iron ore.
  
  Idled Capesizes
  
  There are almost no idled capesizes, Oslo-based Fearnley Fonds ASA analyst Rikard Vabo said. As much as a quarter of the world capesize fleet of about 800 ships was probably idled by owners two months ago in response to plunging rates.
  
  BHP Billiton Ltd., the world’s third-largest producer of iron ore, said Chinese steelmakers are returning to the iron ore market after inventories were used up.
  
  “You are starting to see the underlying demand of the Chinese economy,” Chief Executive Officer Marius Kloppers told journalists today. “We have seen in the steel business in China that the de-stocking cycle is almost complete and that means people are coming back into the market and buying.”
  
  China announced in November a 4-trillion yuan ($586 billion) economic stimulus package running through 2010. That may boost infrastructure projects and steel demand.
  
  Capesize forward freight agreements, derivatives used by traders to bet on future shipping rates, rose 14 percent to $30,375 a day for the second quarter. Panamax futures jumped 12 percent to $16,375 for the same period. The data are from Oslo- based broker Imarex NOS ASA.
  
  Steel stocks gained, with all nine members of the Bloomberg Europe Steel Index trading higher, led by ArcelorMittal. The 13 members of the Bloomberg Metal and Mining Index also advanced, led by Kazakhmys Plc.

Everyone is buzzing once more! Is this the sign of recovery?

On FT.com: hBaltic Dry index up on signs of recovery

• The Baltic Dry index benchmark for freight costs for dry bulk commodities such as iron ore, coal and iron rose almost 15 per cent, the biggest daily increase in almost 25 years, on signs of a recovery in the raw materials trade.
  
  Shipping brokers said that demand for the largest vessels, known as Capesizes, was slowly recovering as Chinese steelmakers bought more iron ore from Australia and Brazil after running down their ore inventories.
  
  The Baltic Dry index rose 14.6 per cent to 1,316 points, its highest in 3½ months. The index is still well below last year’s all-time high of 11,793 points, but has recovered 98.5 per cent from its December 22-year low of 663 points.
  
  Steve Rodley, at Global Maritime Investments shipping hedge fund in London, said the shipping market had bottomed after falling last year “too far, too hard”, although he cautioned that it was still early to forecast a strong recovery. “We are off ground zero, but I don’t think we are going to fly to the stratosphere any time soon.”
  
  Shipbrokers said that most of the Capesize vessels left anchored at ports from October until late December because of lack of demand were now back in the market shipping bulk commodities as consumption improved.
  
  In the energy market, oil prices were volatile after a larger rise than expected in US oil stocks. Downward pressure was offset by bullish comments from the Opec oil cartel about fresh supply cuts.
  
  In late trade in London, ICE March Brent rose 7 cents to $44.15 a barrel while Nymex March West Texas Intermediate fell 46 cents to $40.32 a barrel.
  
  The US Department of Energy said that the country’s oil stocks rose more than expected last week by 7.2m barrels to 346.1m barrels. Inventories at Cushing, Oklahoma, the delivery point of the Nymex oil contract, rose a further 800,000 barrels to an all-time high of 34.3m. The surge in Cushing inventories has broken the traditional relationship between WTI oil and other international and US crude oil benchmarks.
  
  The oil market was also supported by news that Saudi Arabia, the world’s largest oil exporter, had sharply raised its official selling prices to customers for March, hitting the US refineries particularly hard. The price of the kingdom’s main oil grade Arab Light to US customers was set at a premium of $1 to the Nymex West Texas Intermediate price, the highest level in at least a decade, up from a discount of $2 this month.
  
  Petrol prices rose as US inventories rose just 300,000 barrels, half the market forecast. Nymex March RBOB gasoline was up 4.34 cents to $1.2104 a gallon.
  
  Nymex March heating oil rose 1.19 cents to $1.3373 a gallon after inventories fell 1.4m barrels, against the market expectation of an increase of 600,000 barrels.
  
  In other commodities markets, base and precious metals traded higher. Gold consolidated above $900 a troy ounce after UBS said the metal could average $1,000 an ounce this year as a result of strong demand. In London, spot gold rose to $906.05 an ounce from Tuesday’s last quote of $901.60.
  
  In agricultural markets, Thai medium-quality rice, the world’s benchmark, rose to almost $600 a tonne, the highest since October, after Egypt said it would extend a ban on rice exports.
  
  The market had expected that Egypt, the world’s ninth largest exporter of the grain, would lift the ban on April 1.

The glimmer of hope?

On the UK Telegraph, Recession: glimmers of hope?

• The first glimmers of hope are starting to emerge across the world. The pace of economic decline is slowing. Housing sales are picking up, even if prices are falling. Credit markets have begun to thaw.
  
  This is the time-honoured pattern expected to be seen when the downward spiral burns itself out and the cycle starts, very slowly, to turn, helped this time by an unprecedented global monetary and fiscal blitz. But it may equally be a false dawn.
  
  The Baltic Dry Index measuring freight rates for iron ore and other bulk goods has been creeping up for two months after crashing 94pc in the worst fall in shipping history. Copper prices are also edging up after plunging by two-thirds from their June peak. So are lumber prices.
  
  The debt markets have opened like a flower in spring, at least in one sense. Companies issued $246bn (£171bn) in bonds in January, the most since the credit crisis began. France's EdF has raised €9bn (£8bn). Shell and RWE each raised €3bn this week. Blue-chip groups can borrow again.
  
  "The mood is upbeat. There are swathes of cash pouring back into credit," said Suki Mann, a credit strategist at Société Générale. "The market closed down after the Lehmans collapse so there was a lot of pent-up demand, but they are having to pay materially higher spreads than pre-Lehmans."
  
  So far this has not helped the rest of the corporate universe. Average yields on BBB-rated debt are a prohibitive 19.6pc. "The market is absolutely closed. There is no trickle-down yet," he said.
  
  The interbank freeze has started to thaw, again in one sense. David Buik, from BGC Partners, said interest spreads on three-month dollar Libor have come down to 1pc from the extremes above 2pc at the height of the panic. "The cost of money is coming down, but the banks are still not lending to each other. It's virtually moribund," he said.
  
  The US Federal Reserve's loan survey this week showed that lending is again picking up, albeit tentatively. The number of banks expecting to tighten credit has fallen from 80pc in the autumn to nearer 60pc, the lowest in a year.
  
  Mortgage demand has stabilised, though that is small comfort in a country where 19m homes are standing empty and foreclosures are running at 6,000 a day. The number of evictions reached 2.2m last year. But at least the Fed is taking drastic action by purchasing mortgage securities (with printed money) in order to drive down the costs of home loans. The rate for 30-year mortgages has fallen to 5.28pc from 6.5pc two months ago.
  
  The first fruit of these actions is ripening. Pending home sales rose by 6.3pc in December, led by the South and Midwest, a sign that the great glut of unsold houses may start to clear – albeit at very low prices, and very slowly. Some 45pc of the all homes sold in December were foreclosures or distressed sales.
  
  US house prices have fallen 27pc from their peak, according to the respected Case-Shiller index, dropping every month since July 2006. They will fall further. The downward momentum is overwhelming, and the $200bn "option-arm" time-bomb is only just starting to detonate as these rates ratchet up. But it is telling that the shares of builders D.R. Horton, Toll Brothers, and Lennar have begun to rally. The ITB builders share index has risen 45pc from its nadir in December.
  
  The bloodbath in manufacturing industry across the world since September has been frightening – Korea's GDP fell by an annualised 21pc rate in the fourth quarter – but the leading indicators in a clutch of countries look slightly less awful. China's PMI purchasing index rebounded for a second month in January, even if actual output has been declining for four months.
  
  "There are tentative signs of stabilisation. China's manufacturing is no longer in free-fall," said BNP Paribas.
  
  The indexes also bounced in the US, the eurozone, and Britain, despite cataclysmic car sales. The inventory cycle of the OECD club of rich states may be turning. Companies ran down their stocks during the credit crunch when capital costs soared. At some point this process must exhaust itself, forcing companies to start producing again. Michael Vaknin from Goldman Sachs said we are getting "closer to the point" in the re-stocking cycle where industrial output stabilises.
  
  Veterans of Japan's Lost Decade know that these moments of optimism can be intoxicating – and costly. Japan had four bear market rallies before investors finally had the stuffing knocked out of them. Global debt deflation this time may prove just as powerful.
  
  "Nothing moves down in straight lines," said SocGen's perma-bear Albert Edwards. "There will be little bounces. But our view is that investors can afford to be lazy and wait. There is not a cat's chance in hell that this really is the bottom of the cycle."

Blogged yesterday: Is The Baltic Dry Index Signalling The Worse Is Over?