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Baltic Freight Rate Gain Supports Commodities Story

FYI | Mar 07 2008

By Chris Shaw

Having hit a low in late January the Baltic Dry Index, which is an indicator of the cost of moving raw materials by sea, has run significantly higher, hitting a level this week up more than 45% from those lows earlier in the year.

According to TD Securities global strategist Stephen Koukoulas the fall in January was nothing more than a seasonal blip, a view supported by the fact the index is now up around 300% from its lows of 2006 and around 860% from its lows of 2001.

This has important implications for commodity prices as the index is seen as a reasonable proxy for commodities demand and the latest gains in the index suggest there has been little sign of any slowdown in the global demand for commodities and by extension, global economic activity.

This implies global growth rates should remain at solid levels despite the recent volatility in financial markets, which Koukoulas suggests will also mean the current inflationary pressures evident in a number of economies around the world are unlikely to go away any time soon.

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