This article first appeared in The Edge Financial Daily, on January 14, 2016.

KUALA LUMPUR: Further signs of a global economic slowdown emerged as the Baltic Dry Index (BDI) fell to a record low yesterday amid fears of global trade grinding to a halt.

At the end of yesterday, the BDI fell 13 points or 3.13% to close at 402 points compared with Tuesday’s closing of 415 points.

The BDI is a composite of the Baltic Capesize, Panamax, Handysize and Supramax indices. First published on Jan 4, 1985 at 1,000 points, it is an indicator of the price of moving a range of commodities such as coal, iron ore and grain by sea.

“The BDI dropping to [a] record low is mainly due to oversupply of [the] dry bulk fleet and a slowdown in China’s manufacturing activity,” MIDF Research’s transport and logistics analyst Tay Yow Ken told The Edge Financial Daily.

“China’s steel consumption remains subdued despite iron ore prices continuing to fall on concerns over weak demand and excess supply,” he said, adding that China is cutting down its coal consumption as it is moving into greener energy production.

The BDI hit an all-time high of 11,793 points on May 20, 2008, before crashing 94% to 663 points on Dec 5 the same year.

Last year, it hit a high of 1,222 on Aug 5, 2015, and it has been on a downward trend since.

According to Tay, as of February 2015, the dry bulk fleet on order and under construction remained robust with 1,260 vessels on order and 334 vessels under construction.

“This further exacerbates the overcapacity after an expansion of 4.4% year-on-year (y-o-y) in deadweight tonnage, which outpaced the dry bulk trade growth of 4% y-o-y in 2014,” he said.

Tay said the depressed Time Charter Equivalent rates were in line with the lower average BDI as demand from China for dry bulk commodities such as iron ore and coal remained lacklustre due to the softening economy.

In view of the above, he believed the outlook for the shipping industry is likely to remain bearish.

Tay has a “neutral” call on Malaysian Bulk Carriers Bhd (Maybulk) with a target price of 77 sen based on sum-of-parts valuation with the bulk of the value coming from its fleet.

“During [the] third quarter of 2015, Maybulk added a new Supramax bulker, with a new Handysize slated for delivery this month, which will add 7% to 8% of capacity moving forward,” he added.

Nevertheless, he forecast Maybulk to post a core net loss of RM77 million for the financial year ended Dec 31, 2015 (FY15).

For the third quarter ended Sept 30, 2015 (3QFY15), Maybulk’s net loss widened to RM14.19 million from RM2.97 million a year ago, on continued depressed dry bulk rates and substantially lower contributions from its associate PACC Offshore Services Holdings Ltd.

Revenue for 3QFY15 rose 6.2% to RM66.87 million from RM62.98 million in 3QFY14.

For the cumulative nine-month period (9MFY15), Maybulk slipped into the red, with a net loss of RM58.07 million or 5.81 sen loss per share compared to a net profit of RM33.94 million or 3.39 sen earnings per share in 9MFY14.

Revenue for 9MFY15 fell 9.9% to RM176.76 million from RM196.16 million in 9MFY14.

Maybulk closed unchanged at 79 sen yesterday, with a market capitalisation of RM790 million.