The BDI Index has continued its fall which started in October 2021.

The Baltic Dry Index (BDI) is a composite of various shipping rates used for transporting dry bulk containers on merchant ships. Due to the importance of the shipping industry in today’s economies, the index can also be used as an important economic indicator (The use of this index as an indicator is a variation on the theme Charles Dow employed a century ago: Transportation activity implies future commerce).

A change in the Baltic Dry Index gives investors an insight into how the global supply and demand trends are shifting. The index is based on raw materials, and since their supply and demand dictates much of the industrial production (think the manufacturing of goods, energy production, construction, among many, many others), which due to the dependence of the global economies on these industries (and materials that fuel them), can be used as an important indicator for future economic growth.

Despite recovering in the first three quarters of 2021, the BDI index experienced a sharp fall starting in October of 2021. Most of the variables that influenced this decline are ones that were already present in the industry since the beginning of the pandemic: Strict restrictions around the world (and especially in China), supply shortages, and supply chain disruptions, which drive rising shipping costs, which in turn lowers the demand for the shipping. But all of these variables were present by then. So why did the decline start in October, and not let’s say, during the summer of 2021 or earlier? There could be a lot of factors that started influencing the shipping industry in the past couple of months. Even though pandemic restrictions were present for most of the past year, a surge in cases in China caused the Chinese government to impose even stricter measures. This is most apparent in their Ningbo-Zhoushan port (the 3rd busiest in the world), which was shut down due to COVID-19. Also, it could be due to the nature of the industry. Namely, the products which are transported are mostly raw materials used as a just-in-time inventory (in the car industry or in various consumer goods manufacturing). The current shortages due to the supply chain disruptions are causing supply inflation on these products, which is driving the companies that produce them to want to produce even more. They would be willing to pay more for shipping, which due to the congestion in world ports (dozen hundreds of ships just waiting outside ports to be unloaded for weeks) is creating a vicious cycle that feeds itself. On top of that, we have the EU’s drive to increase the usage of renewable sources of energy, which is having a detrimental effect on one of the most used raw materials: coal.

BDI Index Performance (January 2020 – January 2022)

All of these factors combined are the main protagonists of why the BDI index has been declining and continues declining, for the last couple of months. Currently, this brought it down to 1,296 points, which is a decline of 41.5% since the beginning of 2022, and over 77% since the start of the decline, in October 2021.

Impact on Croatian Dry-Bulkers

Croatian dry-bulk companies were also not spared from these effects. Even though these companies operate smaller fleets of ships, and operate in more regional markets, they also experienced this change. Since the beginning of 2021, Atlantska Plovidba’s share price declined by 7.5%, Jadroplov declined by 16.3%, while on the other hand, Alpha Adriatic actually grew by 9%. It could be said that this is part of a bigger trend of volatility and uncertainty experienced on all the markets since the beginning of the year, so it also makes sense to look at these companies since the beginning of this decline. Since the beginning of October 2021, Atlantska Plovidba’s share lost almost 29% of its value, Alpha Adriatic remained slightly red (below -1%), while Jadroplov declined by 24%. Here we can see that even if we were to take out the current threat of rising interest rate and increasing appetite for less risky assets, these companies’ value would decline due to the abovementioned industry-specific reasons. However, with the improvement of the supply chain disruption issues and global recovery from the pandemic, it’s not too far-fetched to surmise that these companies (and the BDI as a whole) would recover as well. Currently, however, the situation is quite bleak.

Performance of Croatian Dry-Bulkers (October 2021 – present, YTD, %)

As of the end of December 2021, the NAV of Croatian Mandatory Pension Funds amounted to HRK 133bn (or EUR 17.7bn), representing an 11.7% increase YoY.

With the Croatian mandatory pension funds being one of the largest contributors and players in the Croatian capital market, they hold significant sway with how they invest their money, so it’s interesting to see how they’ve performed in the recent period.

NAV of the pension funds continued its growth in December 2021, reaching the 21^st consecutive month that they experienced growth. NAV at the end of 2021 amounted to HRK 133bn or EUR 17.9bn, (an increase of 11.7% YoY or HRK 13.9bn). On a MoM basis, this amounts to an increase of 1.5% of HRK 2.03bn. It should also be noted that the net contributions in December amounted to HRK 676.1m, whilst in the entire 2021 they amounted to HRK 7.46bn.

AUM structure change – Mandatory Pension Funds ( January 2018 – December 2021)

Looking over at the asset structure of the pension funds, bonds continue to amount for the vast majority of the total, currently at 62.5%, which as of the end of 2021, amounted to HRK 83.4bn, an increase of 1% MoM (or HRK 851.2m in absolute amount).

Current Mandatory Pension Fund AUM (December 2021, %)

Next up, we have shares, which amount to 21.1% or HRK 28.2bn, an increase of 5.2% MoM (or HRK 1.4bn in absolute terms). This increase is driven by both the domestic equity holdings, which grew by 6.1% MoM (or HRK 921.7m), as well as an increase in foreign equity holdings, which increased by 4.1% (or HRK 480.8m). With this increase, domestic equity holdings account for 56.6% of total equity holdings. Looking at the equity segment on the annual basis, domestic equity holdings were up 25.3% YoY. If we take into account that domestic market was up 20%, it means that they have additionally invested at least HRK 640m. If we take into account that turnover of domestic equity on ZSE was HRK 1.8bn it means that Pension funds contributed to at least 36% of this turnover. Meanwhile, domestic bond holdings account for 94.7% of total bond holdings and in 2021 they were up 31.4% YoY.

Here you can find the dates for the upcoming events of the regional companies.

Given the current Covid-19 situation, some of these events might be subject to change (postponed or cancelled).