Blinking Sell Indicator for Commodities?

Written By Brian Hicks

Posted July 13, 2009

There’s potential danger lurking for commodities: The Baltic Dry Index – a gauge of shipping activity has begun to turn down. And, according to the BDI (well off June highs), there are anecdotal reports of coming gloom and doom. And more weakness here could spell trouble ahead for commodity pricing.

Anecdotal evidence being heard at Telegraph for example is that vessel queues have been falling. There’s even been reports of canceled shippings from China, which may be pointing to a slowdown in China’s buying of coal and iron ore. In fact, China may have been “building stocks of iron ore too quickly in anticipation of stimulus package in China.”

The BDI freight rates may have jumped 450pc in the first half of 2009, as China rebounded, but they’re turning around, says the report. Some doubt that freight rates will recover much since “1,000 new ships are hitting the market this year and again next year, compared to 300 in normal years.”

Talk about glut.

Other analysts are reporting that international port traffic for containers (finished goods) is horrible, too. In fact, rates for a 40-foot container from Asia and America’s West fell this year from $1,400 to $920. “There has never been a decline like this before,” said one analyst. “The container industry is looking at a $20-billion black hole of losses. We can expect a lot of casualties.”

And as you can guess, there are many skeptics of the recent commodity rally. While we do remain bullish on oil long-term, it may be time to go short other commodities, which we’ll bring to your attention shortly, including DBC put options.

It’s so bad that Moody’s just downgraded American ports from stable to negative as the downturn cuts back on consumer demand and cargo volume.

While we were unable to copy and paste the BDI chart, you can view the chart here:

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