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Baltic Dry Index Dropping 4%, Posting Longest Consecutive Loss In 6 Years, Refutes Australian Optimism

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So nothing to do with the oversupply of new ships then?

Errr, no. New ships are slow to come to the market relative to the drop in the BDI. Completely different time scales.

Edited by D'oh

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The antipodeans are always behind the curve, they're just 3 years behind Europe and the US this time. Their crash has been ordered and is waiting for them to take delivery.

People, and hence small businesses are really feeling the squeeze where I am in Oz. Even the superficially successful ones are like a swan gliding on a pond. Real estate isn't shifting either and some of the smaller ones are shutting up shop, though the prices are still crazy. Actually, they are beyond crazy. They are f&*^ing barking mad. Median house price is 9 times median household income, and gross rental returns are as low as 2.4% in some areas...and you can get over 6% in the bank.

I'm sure Bardon will correct my misinterpretation of reality.

Edited to add: http://www.whocrashedtheeconomy.com/blog/?p=1061

Edited by D'oh

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Demand for bulk shipments is bouncing around largely thanks to the waves of stimulus - fist the big bubble and now the latest QE driven one. Highly unstable demand, leading to first hoarding then choking off of new orders.

As stated there has been massive increase in new ship build and also the latest QE and stimulus driven restocking has maybe encouraged fleet owners tp hold onto their older ships for longer rather than decommission. Again, artficial bursts of stimulus skewing the economics.

This is from 2009 - it takes years for these production runs to go through the system - most orders may have been from the initial bubble/bull run in demand.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=asbi_l0tjZY8

Shipping rates, which already fell 59 percent from this year’s high, are retreating as the Organization for Economic Cooperation and Development predicts a 16 percent drop in world trade for all of 2009. China’s State Council called for curbs on steel and cement production last week. A record 146 capesizes will be added this year, equal to 28 percent of the fleet, according to Fearnley Consultants A/S.

Also the larger the ship the more efficient and cheaper they should be - so this in itself would put a negative pressure on shipping rates.

So, not sure that the BDI is indicative of much now - with such an excess of shipping supply it is not the crimping price point that it once was.

The CRB index is still largely falling though.

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People, and hence small businesses are really feeling the squeeze where I am in Oz. Even the superficially successful ones are like a swan gliding on a pond. Real estate isn't shifting either and some of the smaller ones are shutting up shop, though the prices are still crazy. Actually, they are beyond crazy. They are f&*^ing barking mad. Median house price is 9 times median household income, and gross rental returns are as low as 2.4% in some areas...and you can get over 6% in the bank.

I'm sure Bardon will correct my misinterpretation of reality.

Sounds bananas. Especially with the deposit rates as they are.

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Sounds bananas. Especially with the deposit rates as they are.

See the link I added to my post after you replied - University of Western Sydney survey found people living on rice (just rice) so they could pay the mortgage.

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Errr, no. New ships are slow to come to the market relative to the drop in the BDI. Completely different time scales.

Ok, it's just that I work for a company in the shipping world that's all.

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Ok, it's just that I work for a company in the shipping world that's all.

Were the new ships bought assuming that rates would be in the boom territory (was BDI something like 10,000?)? How are they doing on the current rates?

Peter.

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Ok, it's just that I work for a company in the shipping world that's all.

And so?

There is a lot of new capacity coming online this year, but that is known about. Are you arguing that a 50% drop in the index over a period of a month is explained by new ships coming online? If so, please explain.

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And so?

There is a lot of new capacity coming online this year, but that is known about. Are you arguing that a 50% drop in the index over a period of a month is explained by new ships coming online? If so, please explain.

See my previous post - China (and others) have had a restocking period, now China's stimulus is over this has knocked shipments and general demand. Big oscillations in demand + shipping fleet size changes look to mean really big moves in the BDI.

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See my previous post - China (and others) have had a restocking period, now China's stimulus is over this has knocked shipments and general demand. Big oscillations in demand + shipping fleet size changes look to mean really big moves in the BDI.

That is a very different argument from fishfinger's. What you are saying, approximately, is that there is now enough capacity to carry everything that anyone would want to ship at the present point in time, hence the rapid drop in price as there is more capacity than cargo, whilst in former times there was never enough capacity so that the auction settles based on comparative advantage/benefit. In the past due to under capacity price movements were dampened.

Whatever the case, whilst extra capacity may make the BDI more sensitive, new ships coming on line cannot, by themselves, explain a 50% decrease in price over a month. China was restocking. Now they aren't. That is important.

Edited by D'oh

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That is a very different argument from fishfinger's. What you are saying, approximately, is that there is now enough capacity to carry everything that anyone would want to ship at the present point in time, hence the rapid drop in price as there is more capacity than cargo, whilst in former times there was never enough capacity so that the auction settles based on comparative advantage/benefit. In the past due to under capacity price movements were dampened.

Whatever the case, whilst extra capacity may make the BDI more sensitive, new ships coming on line cannot, by themselves, explain a 50% decrease in price over a month. China was restocking. Now they aren't. That is important.

Defnitely a combo. But don't discount the shift in bidding mentality when you go from tight supply of capcacity to oversupply. Look at the houskng market - absolutely no fundamental justification for what has happened the last decade, but the herd mentality has driven it up.

Need to see what some real shipping volumes are like - bet they aren't (overall) anywhere near say 10 or 20% down, despite the 50% fall in the BDI.

Edited by OnlyMe

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As dry bulk researcher Derek Langston of Simpson Spence and Young told the Financial Times last month: "We still anticipate this year we will see a record year in terms of annual growth of trade. However, this is also accompanied by record growth in fleet supply." '

I wonder if that will be followed by a record year of loans to shippers going bad because they can't earn enough at these sorts of rates,

Peter.

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As dry bulk researcher Derek Langston of Simpson Spence and Young told the Financial Times last month: "We still anticipate this year we will see a record year in terms of annual growth of trade. However, this is also accompanied by record growth in fleet supply." '[/b]

Umm, but even this might disguise what has been happening - what do they mean by this year - fianncial year, calender year, rolling 12 months? A rebound from the real lows of 2008, but still actually anaemic compared to ship supply.

Comparable tonnages 2008, 2009, first half 2010 would be the only defiitive figures that would answer this part of the issue.

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II think that most have missed the boat and missed the opportunity that is staring some in the face.

For those products that are in demand the limiting factor is not shipping its wharfage. Its new infrastructure to and from the wharfs that will mow flourish. Yes there will come a point when all of this new infrastructure will allow supply to flow as quick as it becomes available coupled with mum and dad miners bringing on new supply but until then we have an opportunity.

There are some very very large new wharfs and associated roan and rail infrastructure in the pipeline in oz and Asa right now. A super duper new one will be announced shortly in Malaysia built by Vale and this will not only be an import wharf it will also be transshipment wharf from Brazil to China.

yeah...it took 8 years to build Dover...

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http://www.moneyweek...ndex-02703.aspx

john stepek covered it yesterday.

'And by and large, analysts are saying that we don't need to get too worried about this sell off either. Why not?

The BDI measures the cost of shipping raw materials from one place to another. If the price of moving raw materials falls, then you'd assume that people are moving less stuff around the world. Presumably, that's because demand for finished goods is also slowing down. Therefore, a drop in the BDI suggests that the global economy must be slowing down.

That's all very logical. But it misses one point – the supply side. Because it measures the cost of shipping, the BDI might also be saying that there are simply too many ships. The BDI hit a record high in 2008, as demand for shipping rose far ahead of the supply of ships available.

So, as you'd expect, that meant that more ships were built. And fleets are still growing now, even although demand has fallen to more normal levels. More ships and static demand means shipping rates are falling.

As dry bulk researcher Derek Langston of Simpson Spence and Young told the Financial Times last month: "We still anticipate this year we will see a record year in terms of annual growth of trade. However, this is also accompanied by record growth in fleet supply." '

This was what I was alluding to yesterday.

Last year there was quite a kerfuffle in the Chinese/Korean yards as shipowners were cancelling contracts and were prepared to pay the the cancellation penalties. Given that these charges could be over $10M per contract that tells you something about the supply side! Also the yards deperately wanted to fulfill the orders otherwise their docks would be littered with skeleton hilks of VLCC's, Capemax, Panamax etc

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well stop alluding and start sharing your knowledge wink.gif that's the whole purpose of wasting my life on here is to learn from people who know stuff.

Would love to but there is a big grey area on the commerically sensitive front and I'm not ready to have my **** sued off!

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well stop alluding and start sharing your knowledge ;) that's the whole purpose of wasting my life on here is to learn from people who know stuff.

i think he is a Findus bread filled, rather than BirdsEye Cod filled, fish finger. well, if you can find Cod.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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