BDI Surpasses 2000... Favorable Winds for the Shipping Industry

China's Iron Ore Demand Expected to Continue in Q4

[Asia Economy Reporter Minji Lee] The Baltic Dry Index (BDI), a bulk carrier freight index, has surpassed the 2000 mark due to a recovery in China's iron ore demand, reviving investment sentiment in shipping companies.

According to the Korea Exchange on the 8th, Pan Ocean, a shipping-related stock, was trading at 3,970 won as of 9:40 AM, up 1.5% from the previous close. Pan Ocean has shown an increase of about 16% since the beginning of this month. Korea Line also showed a rise of about 7% until trading was suspended on the 6th due to a stock split.

The rise in shipping company stock prices was largely influenced by the rebound of the BDI. The BDI is an index provided by the Baltic Exchange in the UK and is a key indicator of the bulk shipping market conditions. It reflects global cargo volume and order quantities, making it a leading indicator of the world economy. According to Bloomberg, as of the 6th, the BDI stood at 2,097 points, marking a surge of about 21% this month. It has risen approximately 50% over the past month.

The sharp increase in the Capesize bulk carrier freight rate, a component of the BDI, has driven the rise in the freight index this month. The Capesize Index (BCI), which influences the BDI composition, has risen more than 100% over the past two weeks. This reflects concerns over a shortage of vessels amid increased iron ore demand from China. Steel producers in China are aiming to normalize production this year. Ahead of this, Vale, the world's largest iron ore producer based in Brazil, announced a return to normal operations starting in the third quarter, with Brazilian iron ore exports in September estimated to have increased by 21% compared to the previous month.

Iron ore supply and demand directly impact the BDI. After Brazil resumed iron ore exports following the COVID-19 pandemic, the BDI rose from negative levels to 2,000 points in early July. However, due to the spread of COVID-19 in Brazil and flood damage in southern China disrupting supply and demand, the BDI sharply dropped to around 1,200 points. Shipping company stock prices showed a similar trend to the BDI.

The strong BDI is expected to continue into the fourth quarter. China's iron ore inventory is lower than before, suggesting active efforts to replenish stocks in the near term. Jeong Yeonseung, a researcher at NH Investment & Securities, forecasted, "The recovery of bulk cargo volume, reduction in ship orders, and scrapping of aging vessels will sustain the mid- to long-term bulk supply-demand improvement cycle through next year."

Shipping companies' earnings are expected to improve starting in the fourth quarter. Profitability improvements due to the sharp rise in the BDI are anticipated to be directly reflected. In the case of Pan Ocean, weak performance is expected for the third quarter up to September due to the declining BDI index and the drop in the dollar-won exchange rate. Park Seongbong, a researcher at Hana Financial Investment, said, "The BDI is expected to rise further in the fourth quarter compared to the third quarter," adding, "In the third quarter, Pan Ocean's non-bulk segment profitability is estimated to have weakened, resulting in earnings lower than market expectations (64.4 billion won)."

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