Coal, iron ore and grain prices are all headed one way - up.
Yet the Baltic Dry Index, the generally reliable gauge of demand for bulk commodities is collapsing.
Last year the BDI correctly foreshadowed and tracked the mid-year slowdown in the global economy, despite being given short shrift by many bullish commentators seeking to rationalise an upward bias in markets. So what's going on now?
The answer appears to be the QLD floods. As Reuters reports:
Australia's key coal port of Gladstone said on Sunday devastating floods have left it so short of coal that a queue of ships waiting to load would likely be diverted elsewhere.
A deluge in Queensland state has flooded mines and damaged roads and railways, cutting the major Blackwater rail line that goes from the coal centre of Emerald through the flooded town of Rockhampton and south to Gladstone.
Queensland is a major world supplier of coking coal for use in steel-making, and the floods have pushed global prices up.
Although Gladstone itself was not flooded, a Gladstone Ports Corporation spokeswoman told Reuters only two trainloads of coal arrived last week, only two ships loaded and the coal arriving was only for domestic use.
"We have got about 18 ships sitting out waiting," spokeswoman Lee McIvor told Reuters on Sunday. "We are expecting the coal companies to reallocate and reschedule these ships elsewhere."
On a normal day, Gladstone would receive around 24 trainloads of coal, McIvor said.
A glance at the index's internals offers further evidence that the floods are playing a role in the drop. According to Wikiinvest, 25% of the BDI is made up of capesize ships. Capesize vessels dominate trade in iron ore and coal. And it is in the capesize component of the index that we find by far the highest carnage.
Further confirmation comes from Lloyd's List which notes that owing to the knock-on effect of QLD floods and the lack of demand for capesize vessels:
...Rates for West Australia to China iron ore trips are so low that owners are considering withdrawing tonnage from the spot market as daily returns from such voyages barely cover operating costs.
Finally, for future reference, the below video is an excellent exposition of the value of the index:
Bloomberg has another good piece today on imminent increases in capesize supply.