Baltic Dry Index collapses

So the Baltic Dry Index (an index that implies what the cost of shipping for exporters will be – in as far as it represents the fees of the people running ships) has collapsed by about 79% so far this year.

As the supply of ships is incredibly inelastic in the short term, this is probably the result of collapsing world commodity demand (although it could be that a whole lot of new ships came online at the same time – unlikely though).

What does this imply for NZ?  Well the index mainly represents shipping of “hard commodities” – so it tells us that demand for those has invariably fallen.  This implies:

  1. Soft commodities may have fallen further,
  2. Growth in Australia will slow – harming our exports,
  3. Shipping costs (especially for our logs and aluminium) have fallen markedly.

The first two factors are a concern – but the third factor is a bonus.  One of the reasons forestry has struggled is that prices have been depressed (no construction in the US!) while shipping costs have been high/shipping has been impossible to get.  Now ships will come here – and cheaply, making it possible for forestry to get back on the game.

As log prices are not likely to fall further – forestry will benefit from this.  Other commodity sellers may have some trouble (depending on what happens to soft commodity prices).

3 replies

Trackbacks & Pingbacks

  1. […] Baltic Dry Index collapses « The visible hand in economics […]

Comments are closed.