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Hard landing scare over, the Baltic Dry index soars

The plunge earlier this year in the Baltic Dry Index had economists convinced that China's economy was in for a tumble, which would take the commodities market down with it.

The index, which measures the cost of shipping coal, iron ore, grains and other bulk goods globally on various routes, dropped more than 50 per cent in the first half of 2004 after a Nasdaq 1999-style rise of more than 400 per cent in 2003.

Last week, the index (see chart) poked through to a new high and all fingers are pointing again at Chinese demand as the driver. Some analysts figure a flurry of new orders are being shipped in anticipation of sharp price increases to come in 2005, but economist Stefane Marion of National Bank Financial figures there is another driver in a cheaper Chinese currency.

Chinese currency is seen as a problem for global trade because the country refuses to raise the value at which it's pegged to the U.S. dollar. Well, that's a problem for the United States, but the falling greenback has allowed China to actually increase its trade advantage with other countries, Mr. Marion says.

China hiked interest rates 27 basis points last month but the currency stimulus amounts to a rate cut of 120 points, kick-starting a new boom for exports, and a bigger appetite for raw materials, he calculates. Staff

© The Globe and Mail

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