Will this time be different for Baltic Dry?

South Korea’s largest shipping industry, Hanjin shipping, asked creditors last week to restructure its debt, in return for management control. While high leverage (debt to equity ratio of 848%) has been major cause of its demise, what it actually suffered is lower shipping rates.

Baltic dry index, which is extensively used by shipping industry worldwide, for pricing of bulk shipments of raw materials like iron ore, copper, coal dropped to 291 (all-time low) in February after toughing all-time high around 11500 before financial crisis of 2008/09. The index has declined steadily since then, except for occasional bounce back, giving some hope that bottom may have been reached.

Once again after bottoming in February it has risen 136% until now, fueling hope of a stronger reversal.

Back in 2015, Baltic dry index rose 134% till August, after bottoming in February but that rally ended up price finally being much lower than it started.

Similar happened back in 2014, when the index rose 95%, but ended up lower.

So, will this time be any different?

Unlikely, but current rally may extend further. Large part of this rally is being fuelled by larger leverage in China, which has led to higher commodities prices. But for China, leverage has been the major issue, threating global stability. So without broad based recovery across the world, Baltic Dry likely to remain weak.