copper up, page-7

More smoke and mirrors

Everyone previously thought the Dry Baltic Index simply measured demand for commodities - copper - iron ore - wheat etc etc and if it fell - then demand for commodities must be falling --- not doubt demand comes into play - but maybe its not as black and white as some would prefer we believed

I found a line of thinking on a blog saying that a lot of the fall in the DBI can be attributed to the inability of importers to secure letters of credit - understandable in a tight credit market so shippers wont move cargo if payment cant be gaurenteed. Didnt post that thinking coz it was on a blog so credibility was an issue but today I see Bloomberg has taken the issue up also

here
http://www.bloomberg.com/apps/news?pid=20601087&sid=aC0xcJw.ILHE&refer=home


as has Istockanalysis

http://www.istockanalyst.com/article/viewarticle+articleid_2708434.html

Letters of credit and the credit lines for trade currently are frozen. Nothing is moving because the trader doesn't want to take the risk of putting cargo on the boat and finding that nobody can pay.” -Khalid Hashim, managing director of Precious Shipping, Thailand's second-largest shipping company

Yesterday in Baltic Dry, Amazing Plunge, I marveled at the absolute collapse of the index and also thought that there was no way demand for dry commodities had dropped so significantly so quickly.

The real story is that credit has dried up and letters of credit aren’t being honored so the stuff quite simply isn’t shipped. This has caused shipping rates as measured by the index to cliff dive.

There is a very real risk that various economies will start to face stresses in this time of ‘Just In Time Delivery’ as very small stock piles vital commodities quickly get vacuumed up by normal industrial demand.

The credit crunch is everywhere...

Watch the Baltic Dry Index for signs of life. This will help determine if and when the credit freeze starts to thaw.

Shipping Lines Say Tight Credit Cutting World Trade (Update2): “Pacific Basin Shipping Ltd., Hong Kong's biggest dry-bulk carrier, and Precious Shipping Pcl. said demand for moving coal, iron ore and other commodities will fall because banks are guaranteeing fewer loads.

The lack of letters of credit, in which banks guarantee payment for merchandise, could become a "big issue'' for world trade, according to Klaus Nyborg, Deputy Chief Executive Officer at Pacific Basin. Tighter credit has contributed to this year's 80 percent drop in the Baltic Dry Index, a measure of commodities-shipping costs. About 90 percent of world trade moves by sea.

"This can have a significant effect on demand because you won't see the same volume of cargo moved,'' Harold L. Malone III, senior vice president at Jefferies & Co., said at a Marine Money conference in Singapore. "You have to figure out other ways to get trade done.''

The Baltic Dry Index dropped 8.5 percent to 1,809 points yesterday, the lowest since August 2005. Pacific Basin dropped 6.5 percent to HK$4.75 in Hong Kong and Precious Shipping declined 5.5 percent to 12.1 baht in Bangkok.”
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BTW

To what I was suggesting re stockpiling stuff on the wharf in China duing olympics slow down so as to create impression of lower demand - look at what is happening now in iron ore -

China is trying to renegotiate price contracts with BHP and RIO citing high prices and reduced demand - and opportunistic as ever - Twiggy is positioning himself in between them as an alternate supplier lol

BDI is down - prices of metals are down and everyone is saying demand from China is down - but they dont tell us they have 80mt of ore sitting on the wharf lol

This bloke puts it in some perspective - while the article is about iron ore - I reckon they done the same with all commodities - part text below but the rest can be found here - worth a look

http://seekingalpha.com/article/97840-what-s-brewing-between-china-vale-and-the-baltic-dry-index

""What's Brewing Between China, Vale, and the Baltic Dry Index""""


This is Chicago-level hardball. Vale's main iron customer is China, and we all know that China demand is driving steel growth.

But does China need the ore right this second? Perhaps not. Prior to the Olympics, China stockpiled all sorts of materials. Imports of iron ore for the first eight months of this year were 23% higher than for the year prior. With many steel mills closed during the Olympics due either to energy restrictions or pollution control, that ore didn't get used. On September 18, vice chairman of the China Iron and Steel Association Luo Bingshen said that there were 80 million metric tons of ore in Chinese ports. More recently, the association reported demand growth for steel products is slowing - growing only 6% last month, as opposed to the 13% growth seen the year prior. Blame it on rough times in the global economy and decreased auto sales.