THE Baltic Dry index is by no means a perfect economic indicator. It is the intersection of two supply/demand curves, one related to global trade and the other to shipping construction. Nevertheless, it is still worth having a glance at, not least because of its recent history. The index peaked at 11,709 in May 2008, just after the Bear Stearns rescue and while emerging market demand was still taking commodity prices to new highs. It then fell to 663 by December that year as the Lehman collapse was followed by a loss of confidence that saw a sudden shrinkage of world trade.
There was then a remarkable rally that saw the index rise around sixfold within a year. And the rally was still looking fairly robust in May 2010. But if you look at the graph, things have looked pretty ropy since. Indeed, the index may have given a warning sign of slower growth late last year, well ahead of the turn in the purchasing managers’ index. Even though the index has stabilised in recent weeks, it is still almost 90% below its 2008 level. The scale of this decline may be the result of an overhang in the shipping market; it takes a long time to build container ships and operators may have ordered extra capacity in the 2005-2007 boom. It is still striking, however, that the rebound in commodity prices (which dates back to May 2010) has not been reflected in the Baltic measure. A sign, perhaps, that the global economy is weaker than equity investors may believe.