The best indicator of China’s commodity trade is on an insane surge

The once obscure Baltic Dry Shipping Index came to prominence at the start of the Chinese-led commodity supercycle around a decade ago.

The London-based Baltic Exchange tracks the cost of moving commodities along more than 50 routes around the world.

With China’s emergence as the dominant trading economy in the world the index became one of the go-to barometers.

China now controls the global trade in just about every commodity including iron ore (representing over 60% of the seaborne trade), copper (42%), coal (47%), nickel (36%), lead (44%) and zinc (41%) and the death of the supercycle now seems to have been exaggerated.

On Monday, the overall Baltic Dry Index jumped by more than 9% to 1,478, the biggest gain since June 2009, adding to a whopping 19% gain enjoyed last week.

Of the freight rates tracked by Baltex, those for Capesize ships provide the best insight into the health of the Chinese economy.

Capesize vessels can haul roughly 160,000–180,000 tonnes and are the dominant vessels for the world’s 1.1 billion tonnes seaborne iron ore trade. Iron ore represents over 20% of the global dry bulk trade.

China’s imports of iron ore in August were 69 million tonnes, up 11% from a year earlier and within sight of July’s all time record of 73 million tonnes.

The surge in iron ore trade has translated into a massive boost for daily earnings for Capesizes, the largest ships tracked by the index.

Capesize daily rates rose 16.6% to $25,426 on Monday. That represents an astonishing 67% jump from the freight rates recorded at the end of August.

While the gains for Capesizes are certainly impressive considering daily rates have recovered from below $4,000 in June 2012, it is still a far cry from the height of boom.

Capesize rates topped out at an eye-watering $234,000 in June 2008.

And under 1,500 the Baltic Dry Index may have doubled from its 2008 lows, but we’re still nowhere near the May 2008 record of 11,790.