Bad news for commodities: China's buying spree is slowing

09/24/2009 11:45 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

The Baltic Dry Index. If you invest in commodities or commodity stocks, this is the best indicator of short-term trends in the market for commodities such as iron ore,grain, and coal that are carried in bulk by ships.

And the news hasn't been good recently. The index fell on September 23 for the ninth consecutive day. The September 23 decline came to 3.2%. It's now down by almost 50% from the June high.

That's consistent with trade data from China for August released on September 22. China's imports of copper, coal, and soybeans all fell from record levels reached in recent months. (Crude oil imports also dropped. Crude is carried in tankers and trade in that commodity isn't reflected, at least not directly, in the Baltic Dry Index.

More confirmation for the drop in the Baltic Dry Index comes for commodity traders who watch how long it takes to get a ship unloaded in China's ports. Congestion goes up with the volume of imports and sinks when imports drop. Recently the average time a ship has to wait to unload a ship in China's ports has dropped to just three days from a high of 18 days in June. The number of ships waiting to unload has fallen from 88 in June to just 20 in recent weeks.

This has brought shipping rates, which are what the Baltic Dry Index tacks, down big time. The average daily cost of hiring a Capesize bulk cargo ship, the largest size bulk carrier, has dropped to $22,000 from $93,000 in June, according to SSY Consultancy & Research.

None of this means that China is about to stop importing all together or that commodity prices are about to sink back to crisis levels. The movement of the very volatile Baltic Dry Bulk Index does, however, suggest that commodity demand from China in the second half will be lower than in the first half of 2009.

If that's true, then we've seen the short-term peak in commodity prices for a while.

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