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Tuesday, February 05, 2008

Intrigue and Greed in the Baltic Dry Shipping Index

The Baltic Dry Index (BDI) tracks freight shipping around the world. It is the key measure of global shipping costs for dry bulk commodities such as grain, iron ore and coal, and it is down 40% from its peak in November. Many market wags say this is a certain indicator that commodity prices are headed lower.
But not so fast! Stephen Rosenman over at Seeking Alpha has a fascinating story about Nobu Su, the CEO of Taiwan Maritime Transport. Mr. Su is famous for complaining that dry bulk charter rates were "insane" and "unsustainable".

Rosenman explains ...

It does make sense if you know that he has allegedly been heavily betting in the future market against the Baltic Dry Index [BDI], an index that compiles the current dry bulk shipping rates over a wide weries of international shipping lanes. Apparently, according to the Financial Times, Mr. Su started chartering his vessels at substantially below market rates to drive down the BDI. Over two months, the BDI and, with it daily charter rates, dropped precipitously. The BDI fell from over 11000 to about 5400 in just about two months.

On January 23, the Financial Times broke the story. The same day, Su resigned as Co-chairman of Star Bulk Carriers due to "too heavy a work load." George Economou, the CEO of Dryships (Drys) commented that one man had "shaped" the market.
Holy smokes!

To be sure, Mr. Su has told the Financial Times he had nothing to do with the precipitous decline in the BDI. But even the Financial Times own blog, Alphaville, seems to take that with a jaundiced eye.

If this is true, then beaten-down shipping stocks are cheap, cheap!
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