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Baltic Dry Index Approaching Old Highs

Monday, May 12, 2008 | 11:30 AM

About a year ago, we looked at the Baltic Dy Index as it hit new highs.

At the time, we noted it reflected "global growth, especially Asia and to a lesser degree, Europe. We also discussed that growth in the BDI reflects a shortage of shipping vessels as much as it does demand for shipping.

The Baltic Dry Index recently tumbled 40% -- on recession fears? new shipping capacity concerns? -- but has since recovered much of that loss.

I view these charts as encouraging, with an asterisk. Why not fully encouraging? Because of the other legitimate ways you can interpret this price action:

- Ongoing lack of capacity -- with many more ships coming on line over the next 10 years, the tight supply constraints will not be alleviated until much later this decade;

- High prices of Commodities allows shippers some pricing room;

- Marginal Demand increases from China, India and Brazil;

Bottom line: Watch the recent highs for a confirming breakout -- a run through 10,630 or so could lead to a move towards 11,500.

Here is the latest few charts: