Baltic Dry Index Makes New Low, Huge BDI/Copper Divergence (Chart)

The Baltic Dry Index ($BDI), or dry bulk freight rate index, just broke through the 2010 low of 1700. It closed at 1,621 today (1/5/2011). When the financial system froze up in late 2008, the BDI hit a low of 663 before the reflationary jolt by the Fed. It was pretty much a done deal for reflationary assets to rally hard, and look where we're at today with the addition of QE2. What's interesting now is dry bulk commodities and the Baltic Dry Index have been diverging for 7 months now. For example, the BDI peaked in May 2010 while Copper kept making new highs. Look at the huge gap on the second chart. You'd think commodities would follow freight rates. So how does this gap close? Are dry bulk commodities overpriced? China demand waning due to rate hikes to curb inflation? Or is this simply a supply/demand imbalance on the shipping front? Related articles: Queensland Flooding to Cut Freight Rates as Coal Transporters Lie Idle (coal ships lie idle) and China Stocks' Best Forecaster Predicts Slump in 2011, Defying CICC, Mobius. Check out the $BDI 3-year chart and $BDI/$COPPER chart after the jump.

$BDI (Baltic Dry Index) -

$BDI/$COPPER (click for larger view)