BDI Doubles in Two Weeks... Shipping Industry Recovery Trend

Pan Ocean, Daehan Shipping Rise
Iron Ore Cargo Volume Increases, Cape Index Soars
Old Ship Phase-Out Ahead of Sulfur Oxide Emission Regulations Also a Boon

[Asia Economy Reporter Minji Lee] After the outbreak of the novel coronavirus infection (COVID-19), the Baltic Dry Index (BDI), which had fallen to negative levels, more than doubled in just two weeks, leading to a recovery in investor sentiment toward shipping companies.

According to the Korea Exchange on the 19th, Pan Ocean, a shipping-related stock, closed at 3,760 KRW, up 8% from the previous trading day. On the same day, Korea Line also rose 5.3% to close at 17,950 KRW. Compared to this year's lowest point (March 19), they have increased by 80% and 65%, respectively.

The rise in shipping companies' stock prices was largely influenced by the surprising rebound of the BDI. The BDI, provided by the Baltic Exchange in the UK, is a key index that reflects the market conditions of the bulk shipping industry. It is used not only to gauge the shipping industry's business cycle but also as a leading indicator to predict economic growth and the global economy. As the index rises, it is understood that the shipping market and economy are improving. As of the 17th, the BDI rose to 1,246 points, more than doubling from 520 points on the 1st.

The sharp rise in the BDI this month was mainly due to a significant increase in the Cape Freight Index (BCI), which influences the composition of the BDI. The BCI rose from 1,039 points on the 10th to 2,455 points within a week, doubling in value. This was because the Chinese government increased large-scale infrastructure investments to overcome the impact of COVID-19, leading to a massive increase in iron ore imports.

Brazil's resumption of iron ore exports also had a positive effect. During the COVID-19 period, Brazil's iron ore exports decreased while Australia's exports surged, causing shipowners to deploy vessels mainly in the Pacific region, which increased the value of ships in the Atlantic region. When news broke on the 17th that Brazil was restarting its halted iron ore production, the BDI jumped 18% (192 points) in a single day compared to the previous day.

Yang Ji-hwan, a researcher at Daishin Securities, said, "As the volume of iron ore shipments from Brazil and China increased, the shortage of shipping capacity in the Atlantic region led to a sharp rise in charter rates and freight rates. This also affected the futures market, with the July contract price for Cape vessels in the global Forward Freight Agreement (FFA) market showing a sharp increase."

In the securities industry, considering that China's iron ore inventory is lower than before despite high demand, the BDI is expected to show a sustained upward trend for the time being. The upcoming strengthening of the sulfur oxide emission regulations (IMO2020) and the beginning of a full-scale restructuring, including the phasing out of older vessels from the market, are expected to stimulate supply and put upward pressure on the BDI.

Yeom Kyung-ah, a researcher at Shin Young Securities, explained, "As vessels that were about to be dismantled and had been transporting cargo at low prices were removed from the market, supply decreased, causing market freight rates to rise rapidly. Korean bulk shipping companies are in a favorable position because they carried out restructuring earlier than shipping companies from other countries."

This content was produced with the assistance of AI translation services.