Dry Bulk Index Falls to Another Historic Low of 355, But Demand is Not The Problem, Say Analysts

The Dry Bulk Index has now been at a record low for the last 13 consecutive trading days, and fallen every day so far in 2016.

It was business as usual for dry bulk today; unfortunately that means yet another historic low was set for the Baltic Dry Index, which fell 3 points Thursday to 355.

There was however a further positive for the Cape Index, which followed yesterday's single point gain with an increase of 20 points today to 206.

Average spot TC rates for capesize vessels rose to $2,808 per day.

However the overall index was dragged down by a fall in both the Panamax and Supramax indices, with average spot TC rates falling to $2,764 and $3,829 per day respectively.

The drop means the index has now been at a record low for the last 13 consecutive trading days, and has fallen every day so far in 2016.

Many analysts have pointed to a drop in demand, particularly with respect to Chinese iron ore demand, as the key driver behind the chronically dire dry bulk markets.

But in a Forbes opinion piece Wednesday, Tim Worstall argued that supply, not demand, is not the problem, and that the decline is simply a result of the supply of ships outpacing global growth.

"The Baltic Dry is not a measure of the volume of world trade, the amount of it, but of the price of doing it for certain goods. And it simply is not true that prices depend solely upon demand," said Worstall.

"We cannot say that a price has fallen thus demand must also have done so. Price is the thing which changes in order to balance supply and demand."

He also observes that the world fleet doubled in size between 2010 and 2013, and at the same time China doubled its shipyard capacity.

Sharing Worstall's view is James Kidwell, chief executive at Braemar Shipping, who commented: "The dry cargo market was used to growth approaching 10 percent for quite a few years on the trot."

"All of a sudden you've hit a market that's gone flat. That is a radical change.

"If you've got more ships than there are cargos, then freight rates are going to be weak – it's that simple."

Earlier this year the Shanghai International Shipping Institute (SISI) predicted 2016 will bring a "wave of bankruptcies"  within China's dry bulk shipping industry.

Yesterday Ship & Bunker reported that Eagle Bulk Shipping Inc. was the latest player to come under increased pressure, having been given until February 2, 2016 under a Forbearance and Standstill agreement to determine how it will settle with its lenders.