Baltic Dry Index Plunges Raising Growth Concerns (MarketWatch) (21-01-2008)

SAN FRANCISCO (MarketWatch) -- The Baltic Dry Index fell to 6,462 on Friday, declining by 30% since the start of the year and by 42% from Nov. 13 all-time high, according to the Baltic Exchange in London, increasing concern that the global economy is following the U.S. economy slowdown.

The gauge tracks freight rates on the mammoth vessels that carry tons of soybeans, corn, coal and metals across the globe. Economists used it to follow global trade and growth trends. As demand for those basic materials declines, freight rates drop and the index tumbles. The trend provides an early snapshot of trade volumes before governments compute reports.

According to analysts, there could be extraordinary factors in play here, contributing to the severity of the decline. They include a drop in iron-ore cargo volumes from Brazil, perhaps influenced by merger talks between BHP Billiton Ltd. and rival producer Rio Tinto Ltd.; weather conditions in Australia interfering with shipments; and suspected efforts by Chinese buyers to reduce imports to get better raw materials prices in upcoming contract talks, analysts say. The decline, however, is probably more consistent with global growth slowdown.

As Wall Street waits for more trade data to confirm or refute the Baltic Dry Index's signals, analysts have plenty of evidence that U.S. shipping activity already has dropped off.

At the Baltic Dry Index's peak, leases on 170,000 deadweight-ton Capesize vessels were fetching more than $200,000 a day; the index does not include liquid commodities like oil or manufactured goods like TV sets.

The plunge in the index comes as the chance of a recession has risen in the U.S., say economists. They point to a fall in consumer spending late last year, a slowdown in hiring and languishing manufacturing activity. 

A wider global slowdown, particularly one that clips demand for U.S. raw materials like wood or metals, could cloud the export outlook.

Source: MarketWatch