Business Insider reported that the Baltic Dry Index, a measure of dry bulk shipping rates for commodities such as iron ore, fell 12% this week and is down almost 60% to 1,700 from the 4,200 level it was at back in late May 2010.

Nothing makes this more clear than steel. The table below shows global steel demand, in millions of tonnes. Steel, via its inputs iron ore and coking coal, is the number 1 driver of dry bulk commodities demand globally, and its demand isn't falling. In fact, it's set to grow 12% this year, which is a far better performance than in 2009.

Steel demand is rebounding, which exposes the Baltic Dry Index as a false indicator of falling commodities demand:

Global Steel Demand

In million tonnes

Growth

Source: Worldsteel

Now, steel demand could contract in the future, but the Baltic Dry Index is built from spot rates for shipping, it doesn't have any forward expectations priced into it. Thus you can't even say that the BDI is looking forward. It's simply collapsing since far too many ships have come onto the market, which is bad news for dry bulk shipping companies, but not a big deal for macro observers worried about the state of world economic activity. There may be legitimate reasons to worry about global growth right now, but the BDI is not one of them, and if anyone tells you otherwise, then ask them whether global dry bulk commodities demand is expanding or contracting right now.

In addition, note that dry bulk stocks themselves, such as DryShips, Diana Shipping, Genco and Eagle Bulk, have begun to diverge from the BDI's performance and today are outperforming the market:

Shipping trades at a glance

Global

Dry Bulk

(Sourced from www.businessinsider.com)