The Baltic Dry Index (BDI) rose significantly over the past week as sweltering temperatures in northern China boosted the demand for the coal that was needed to make the electricity to keep air conditioners humming.
The BDI, which serves as a barometer for the dry bulk spot market, gained 15.2% since last Friday to 1,240 points on Friday to reach the highest level in a month.
The capesize sector gave the greatest lift to the BDI as its ships got busy shipping coal to China so that the country’s electricity plants could meet the heightened need for air conditioning.
The Baltic Exchange’s Capesize 5TC basket of spot-rate averages across five key routes skyrocketed 36% over the last seven days to nearly $17,300 per day on Friday, achieving its highest point since 19 May.
“The most dramatic increase can be seen in the North Atlantic region, where earnings from transatlantic round trips have increased by 86% since the beginning of the week, aided by rising coal trades,” Clarksons Securities analyst Frode Morkedal wrote in a note on Friday.
Temperatures in Beijing averaged a record high of 85C for June, Reuters reported.
“This scorching heatwave has caused an increase in electricity demand,” Morkedal said.
While the higher temperatures may boost the capesize market by keeping coal demand elevated, it is unclear as to how the heat may impact China’s economy, he wrote.
“While they may act as a catalyst for certain sectors, particularly energy, they may also pose a challenge to the overall economic recovery process,” he said.
“In the dry bulk sector, China’s hydropower supplies, which are currently at their lowest since 2015 due to severe drought conditions, are expected to boost coal imports, providing a positive support to the dry bulk market.”
Average spot rates for the smaller ships offset the Capesize 5TC’s positive impact on the BDI by losing a little ground over the week.
The Panamax 5TC slid 5.6% over the past week to $10,100 per day on Friday, while the Supramax 10TC slipped 0.6% to $8,178 per day. The Handysize 7TC declined 1.8% since last Friday to $8,197 per day on Friday.
