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Shipping rates up for commodities

Global shipping rates for commodities have climbed to their highest level since January last year according to the Baltic Dry Index, which tracks global freight rates for ships carrying dry-bulk commodities.

The Index is seen as one of the key predictors of economic growth around the world. On Wednesday last week, it climbed 4.6%, taking its rally to around 36% for this month alone, as reported by The Australian.

A number of circumstances have sparked greater demand for imported commodities. First, Chinese companies have been prompted to restock their inventory levels while commodity prices remained low. This demand has pushed iron ore from around US$87 per tonne 12 months ago to over US$135 per tonne today.

Second, dry weather in China has put significant pressure on water supplies in Chinese plants that make iron-ore pellets, which has also prompted greater demand from sources outside the country.

However, whilst the Baltic Dry Index shows positive signs, it is still too early to tell whether recent demand will translate into broader global growth, but the signs are certainly hopeful. That is a good thing for companies such as BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG), which are all ramping up their production levels of the commodity.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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