Baltic Dry Index Runs Aground

The Baltic Dry Index has fallen to 498 points, its all-time lowest level, down 36 percent from the start of this year and some 95 percent from its peak in 2008.

Industry representatives and analysts have described the current state of affairs in no uncertain terms.

This is “absolutely uncharted territory for the market,” said Khalid Hashim, director of Thailand dry cargo shipowner Precious Shipping.

"This market is looking like a disaster and the rates are a reflection of that. It is looking scary for the market and it doesn't look like there is going to be any life in the market in the near term," Eirik Haavaldsen, a shipping analyst at Oslo-based Pareto Securities, told media.

Analysts suggest there are several factors at play in the collapse of the BDI: a slowdown in demand for iron ore and coal shipments and an oversupply of vessels.

First, iron ore: Chinese iron ore prices have been trending down for some time as construction and manufacturing in the country slow their pace. Iron ore is the biggest category of bulk cargo and Chinese imports are expected to be flat next year. Chinese iron imports were unchanged over 2014 the first 10 months of this year, and are predicted to remain flat.

Second, coal: Chinese coal imports have been falling steadily as China has ramped up state support for domestic coal mines, cut metallurgical coal orders as steel production slows, and increased its investments in other ways of generating electricity, like wind and hydropower. Chinese coal imports were down 30% over 2014 the first ten months of this year.

“[China's] import growth of raw materials is either flatlining or declining,” said Nigel Prentis of Hartland Shipping Consultants. “That’s having a really big knock on effect."

Third, too many bulkers: "What's happening is that in 2012 to 2014 the number of ships ordered overwhelmed the market . . . The fleet is four times the size that it should be," shipowner Peter Georgiopoulos told media.

Analysts say that the oversupply is due to a rush in newbuilding orders over the past several years as China's economy expanded and day rates soared. Owners have been reluctant to scrap older vessels; while scrap steel prices stay low, there's not as much money to be had.