CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure. CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure.

​​​​​Baltic Dry Index surge highlights commodity resurgence​​​​​

The Baltic Dry Index is soaring, with Chinese industrial production highlighting the resurgence in demand for commodities. Which stocks and forex markets could help provide opportunities to take advantage of?

Commodity stocks took a hit in the first quarter (Q1), as the strict lockdown in Wuhan led to heightened fears of an impending crash in demand for raw materials. Manufacturing has been hit hard over recent months, highlighting the sharp contraction in global output.

Surge pushes Baltic Dry Index to yearly high

However, the Baltic Dry Index (BDI) tells a very different story that is emerging, with a recent surge pushing the crucial barometer of global growth into a fresh 2020 high.

The BDI provides a gauge of shipping prices for dry bulkers, which carry unpackaged bulk cargo, such as metal ores, cement, steel, tine, coal, and grains. A rise in shipping rates are synonymous with increased demand and prices for the product it carries.

The chart below highlights the recent recovery for both the BDI and iron ore. There are a number of factors in play here, with coronavirus-led shutdowns for Vale in Brazil helping boost prices through lessened supply.

While coronavirus disruptions have helped drive upside for the likes of iron ore, we have seen signs that industrial production is picking up in China. The year-on-year industrial production data for China highlights the we are already 4.4% higher than the same time last year.

Looking towards the US, we also have a significant chance that US President Donald Trump could push for another stimulus package in a bid to boost growth this year. Rumours of an impending $1 trillion infrastructure package should further bolster commodity prices, driving shipping prices higher yet. While this package is far from certain, it could also provide an insight into the type of stimulus countries could embark upon to boost growth during this crisis.

The beneficiaries of a commodities uplift

Should we see further upside for commodities, there are a number of potential benefactors to look out for.

Focusing on iron ore, the Australian dominance in the sphere means that we see a significant relationship between the Australian dollar (AUD) and iron ore prices. The chart below highlights how a continuation of this recent trend could help bolster the AUD price going forward.

Mining rebound could be set to continue

Another way to look at things would be from a miners perspective, with the FTSE 100 hosting plenty of global mining firms.

While the recovery has been mixed, owing to the different commodities in each mine, we have seen a substantial rebound over recent months, which should continue as long as the economic recovery is moving in the right direction.

From a shipping perspective, there are a number of dry bulk stocks which are hoping to rebound off the back of the recent surge in the BDI. Once again, we have a number of different types of ships in each fleet, with the breakdown providing a range of alternative outcomes from a pricing perspective.

The declines seen in the early part of the year are being reversed, and there is a strong likelihood that we will see further upside if the BDI continues the way it's going.


This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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