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The Baltic Dry Index serves as a leading indicator in that it provides an estimate of demand for raw material inputs, which are used in the production of other goods. However, the recent decline in prices may not fully reflect a drop off in demand. It should be noted that when the index was rising back in 2007, production of additional vessels was put into motion. Now that these vessels have been completed, the increased supply of ships could also bring downward pressure on prices. Both of these theories will be examined in an attempt to shed some light on a few different plays.

We will first take a peek at demand for the leading cargo, iron ore, and one of the largest importers of this commodity, China. Chinese importing of this particular raw commodity, which is used in the production of steel, has stalled as of late. As China attempts to cool its economy, demand will remain low. As the graph shows, imports have dropped as of late, and this is certainly taking its toll on the BDI. If demand continues to slip, expect to see the BDI remain at standstill, at best.