Sectoral Relation ship and Baltic Dry index

Yesterday Baltic Dry Index bounced back. This is an index which tracks shipping freight rates on real price basis ( no futures trade). Most of the cargo demands come from transportation of crude oil, iron ore, steel, copper , agri commodity etc.
Therefore- shipping stocks had a field day yesterday. One should be quick to relate it with the above mentioned commodities- Sesa goa, Gujrat NRE Coke, sterlite also moved in tandem with shipping sectors.
What Is The Baltic Dry Index?

Despite the name, the Baltic Dry Index has nothing to do with markets in Lithuania, Latvia or Estonia. Instead, it’s all about the cost of shipping major raw materials. Like iron ore, coal, grain, cement, copper, sand and gravel, fertilizer, even plastic granules.

The value for the index is determined by the London-based Baltic Exchange, which traces its origins back to 1744. Each day, the exchange canvasses hundreds of brokers around the world for price quotes on moving goods. For instance: Shipping 100,000 tons of coal from South Africa to Japan, or 50,000 tons of iron ore from Australia to China. It then aggregates the quotes to form the Baltic Dry Index.

Basic economic principles of supply and demand explain the significance of the index…

The supply of cargo ships is tight and inelastic. It takes roughly two years to build a new cargo ship. And the high cost of each prohibits docking ships during slow periods. In other words, a change in cargo rates does not change the number of ships in operation. So even the slightest changes in demand for shipping raw materials results in a change in the index.

And because the index tracks the cost of shipping raw materials – the precursors of economic output – instead of intermediate or finished goods, it provides a precise and rare measurement of the volume of global trade at the earliest possible stage.

A sharp move up, means global trade is increasing. Conversely, a sharp move down, means it’s decreasing. Since global economic activity ultimately influences the equity markets, sharp moves in the Baltic Dry Index often predict and precede similar moves in the equity markets.
Of course, there are other reasons to favor the Baltic Dry Index over other leading indicators, including:

No room for speculation, Not subject to revisions,An inability to be manipulated,Real-time, daily updates

You can see its chart and alo compare it with charts of Gold, crude Oil , CRB Index and may other commodities by clicking on the given link

http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm
The funny part of trading is that sometimes these relationship work and some time do not.