BDI: still relevant, but not the leading indicator it used to be Report

Insight 25 April 2019

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Report summary

The Baltic Dry Index (BDI) measures the weighted average cost of shipping raw materials on major shipping routes around the world. It is frequently cited as a leading indicator of global trade health and, by extension, the global economy. The commonly accepted theory holds that when manufacturers need more raw materials (typically commodities and often coal), shipping volume increases and the BDI rises; alternatively, when the demand for commodities declines, so does the BDI. This theory is being examined.

The coal industry carefully watches the BDI
The BDI is signalling months of sluggish coal prices
- What does a rising BDI signify to coal shippers?
The BDI hints at weak prices but beware!
- But what if the BDI reverses direction?
- Addicted to Chinese demand
- Can supply influence the BDI?
- Laissez faire? Definitely not!
- BDI correlations have often failed as indicators
- The verdict: there is high certainty that coal prices will be flat for months
- The verdict: there is some suspicion that coal prices will be flat for months
Summary

Tables and charts

This report includes the following images and tables:

BDI and historical Newcastle 6,000 kcal/kg NAR coal price (13 Apr 2019 indices = 1.0)
BDI and historical Newcastle 6,000 kcal/kg NAR coal price (04 Apr 2003 indices = 1.0)
40-week moving average BDI profile at two rates of demand recovery (ln of 40-wk moving avg BDI index)