According to a recent article on the Wall Street Journal, a sudden surge in China’s demand for iron ore has helped push global shipping freight rates to their highest level in more than 18 months, raising hopes that a recent downturn in some commodity prices is nearing an end.
The chart below (courtesy of StockCharts) shows the Baltic Dry Index ($BDI) surging to the highest level since the start of 2012. Here’s a recent comment from John Murphy:
“It has also broken a downtrend line extending back to mid-2011. The BDI tracks rates for ships carrying dry-bulk commodities like coal, iron ore, and grain. The BDI reflects global demand for raw materials, and is also considered a leading indicator of global economic growth. The steel industry is especially sensitive to trends in the BDI because of the need to ship iron ore by sea from places like Brazil and Australia. Iron ore is used to make steel. That helps explain the recent upturn in steel stocks. Stocks tied to copper are also starting to rally.”
Is China back of this is just another “head fake”?