A drop in the Baltic Dry index – a price indicator for the shipping of bulk commodities – could significantly impact the competitiveness of Australian miners with their Brazilian counterparts.
BHP, Rio Tinto and Fortescue Metals Group, who together represent a major portion of Australia’s iron ore sector, have been faced for some time by the challenge of Brazilian competitor Vale in terms of operating costs.
The one major advantage the Australian miners have had over the Brazilian giant, however, is the proximity of their product to China, giving them cheaper shipping costs to the world’s biggest iron ore customer.
But a slowdown in global trade has led to a significant drop in the price of bulk shipping –whittling away at the scale of that advantage.
The Baltic Dry index, used to measure the price of bulk commodity shipping, has fallen to roughly 420 points in recent weeks.
This is a far cry from the peak of almost 12,000 points in 2008.
While the index is quite volatile – it rebounded from roughly 550 points in 2014 to around 1,200 at one point in 2015 – long term indicators suggest the index will stay around this region for some time.
A continued and lengthy slowdown in world trade since the Global Financial Crisis, along with the significant commodities slump, has led to the collapse of several Chinese shipping companies in the last 12 months.
This, combined with an oversupply of mining commodities in the market, has led overall world trade to stagnate in volume, and drop in US Dollar value by roughly 12.9% over the past year, according to one News Limited report.