BDI Shows Labor Day Gains, But Capesize Rates Still Falling

The Baltic Exchange’s Baltic Dry Index (BDI) rose by 0.6% today, reaching its highest level since 8/24.  But, these gains have come on continued weakness in the Capesize sector where rates have fallen for eight consecutive days, losing an additional 2.1% this morning.  Rates on smaller vessels, especially panamax, have fared much better over recent weeks helping to support the overall BDI.  The Baltic Panamax Index, which gained 2.5% this morning is now up 18.2% on a weekly basis, offsetting the BCI’s decline of  10.2% during the same time period.  As I outlined last week in my column for TheStreet.com Panamax rates have likely reached an interim bottom, and should continue to show some moderate strength and stability, Capesize rates will likely face some additional downside.

Downside risk remains in place for the sector through a potential supply glut of ships and reduced new lending in China, leading to a reduction in the country’s demand for dry bulk imports.  Possible upside risks are a possible uptick in demand due to the restocking effect of depleted US business inventories, and fewer than anticipated deliveries of newbuild vessels. But, without an increment in consumer demand these positive effects could be temporary.  For full details on my views on the sector please see my daily shipping column on TheStreet.com’s RealMoney section.