Most commodity prices have started to fall on the back of a stronger dollar and the prospect of higher interest rates. At the same time, shipping rates remain strong, suggesting that demand for raw materials is unaffected by the price of commodities shipped by ocean-going ships to global destinations.
In 2018, interest rates moved higher, with crude oil prices hitting their highest level since 2014 on oct 3, boosting underlying prices for global cargo shipments. In addition, the current trade dispute between the U.S. and China could lead to stockpiling of China's strategic stocks of raw materials in response to long-term protectionism. The shipping industry has seen freight rates rise even though raw material prices do not reflect demand. The Baltic Dry Index has been on an upward trend since the start of 2016, with shares of Nordic American tanker shipping (NAT) rising last week.
Recently, the crude oil market experienced a downward adjustment. Energy commodities fell to a low of $26.05 per barrel in February 2016 and hit a recent high of $76.90 on October 3, 2018.
Most commodity prices have started to fall on the back of a stronger dollar and the prospect of higher interest rates. At the same time, shipping rates remain strong, suggesting that demand for raw materials is unaffected by the price of commodities shipped by ocean-going ships to global destinations.
The BDI is near this year's highs, not lows
The Baltic dry index (BDI) is just one of many freight benchmarks. The BDI index, published daily by the london-based Baltic Exchange, measures the rates charged by owners of Capesize, Panamax and Supramax Time charter ships for dry bulk cargo. While the prices of many major commodities have fallen in the past few weeks and months, BDI continues to show strong demand for transporting raw materials.
Since many raw material prices hit lows in February 2016, BDI has traded between 291 and 1773. The index closed at 1470 on November 5, still close to a high, not a low, in a sign of rising global shipping demand and freight rates.
In 2018, the BDI ranges from 948 to 1773. At its current level, it is still above the midpoint this year that indicates the strength of the shipping market.
Speaking of oil markets, prices have fallen more than 17.5% since early October. The drop in the price of the world's most important industrial commodity has not slowed demand for crude oil, according to clues from the shipping industry.
In January 2018, the cost of renting a Suezmax tanker was about $6,000 per day, while in March this year, the cost dropped to $4,100. The current rate is about $28,700 per day, according to a letter to shareholders from Nordic American tanker (NAT). 'The higher the future tanker rates are, the better our ability to pay dividends.' 'Going forward, a stronger tanker market is forming the basis for higher dividends.' The market interpreted the comments as a sign that the dividend would soon rise, sending NAT's shares up and above technical resistance.