The Baltic Dry Index is Hitting Multi-Year Lows

By on February 5, 2015

Recently, the Baltic Dry Index (BDI), which measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea, has fallen to its lowest level since 1986 indicating anemic worldwide economic activity. Several factors, besides economic growth, affect the BDI such as the supply of shipping vessels and the cost of fuel to run them (low at the moment).

Since 1985 the Baltic Dry Index has a positive correlation of 0.5 to the S&P 500 (1 = perfect correlation, -1 = perfect inverse correlation). This correlation appears spurious at the moment with the BDI at new lows and the S&P 500 near its all-time high.

The Baltic Dry Index spiked to a level over 10,000 in an extreme move over the five years leading up to the 2008-2009 financial crisis, spurred on by the commodity boom related to Chinese infrastructure and housing investment.

Prices of shipping related stocks such as DryShips (DRYS), Diana Shipping (DSX) and Paragon Shipping (PRGN) reflect the slump in the BDI and may offer an interesting trading opportunity when shipping costs rebound.

Baltic Dry Index Chart

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