Monday, August 10, 2009

Baltic Dry's Worst Week Since October 2008

The Baltic Dry Index, which tracks shipping costs and is viewed as leading indicator for commodity prices, has had its worst week since the peak of the financial crisis last October, as Chinese demand slowed. The index fell from 3,350 to 2,772 this week – a fall of 17.2pc - as imports of iron ore and coal slowed down. The index is now 35pc lower than its 2009 high, hit on June 3.

Earlier this week Ian Ashby, head of iron ore at miner BHP Billiton, said at the Diggers & Dealers conference in Australia that Chinese restocking of iron ore was at an end. Mr Ashby said that supplies at the country's ports were enough to sustain a month of consumption. However, some believe that imports have slowed down as Chinese steel mills are still locked in talks over the pricing of iron ore imports over the next 12 months. The talks have proved fractious, with the Chinese seeking steeper cuts in pricing than the 33pc agreed with steel mills in Korea and Japan. Chinese authorities also arrested four members of Rio Tinto's iron ore team, accusing them of stealing state secrets and bribery.

According to Bloomberg, the index slid 4.6% or 135 points bringing the average to 2,772 which brings this week total loss of the index to 17%. This might also explain to some length as to why the USD has rallied over the last few days - as smart money positioned itself for weaker equity markets. Hence brace yourself for some sustained sell down in the US markets especially in coming days. Although markets will be volatile with a downward bias over the next few days, I still think the underlying bull run is intact, buy on dips.

p/s photos: Angelababy Yang Wing

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