Saturday, October 3, 2009

Dry Bulk Shipping Ready to Sail?

In a Bloomberg report on September 29 " Baltic Dry to Jump on Chinese Demand, Cosco Says" :

"The Baltic Dry Index, the main measure of shipping costs for commodities, may surge more than 80 percent by the end of the year on increased demand for shipments to China, according to China Ocean Shipping (Group) Co.

The gauge may rebound to 4,000 points as local governments encourage factory output, especially of steel, Kong Fanhua, a senior researcher at the company, said in an interview. “If you believe in a China story, believe in a recovery in the shipping market,” Kong said today. The index ended yesterday at 2,192."

Iron ore negotiations and seasonality in coal consumption were cited as drivers of shipping in the fourth quarter:

"Iron ore is the biggest dry-bulk cargo moved by sea, and China is the top consumer of the steelmaking material. The Baltic Dry Index, regarded by some investors as a proxy for shifts in global commodity demand, peaked this year at 4,291 in June as China’s stimulus package revived demand.
Talks on contract iron prices for next year between suppliers and Chinese mills may drive vessel bookings, Kong said in Singapore, where he’s attending an industry conference. The fourth quarter is also the “traditional high season” for coal consumption, which should boost the shipping trade, he said. "

China, as usual, was cited as the key to this expected rebounce in dry bulk shipping:

"“China’s government can’t stop the current policy of expansion,” said Kong. State-held China Ocean Shipping owns the world’s largest operator of dry-bulk ships. “It’s just like driving a car on a mountain: if you stop in the middle of the mountain, you’ll slide down backward.”
Premier Wen Jiabao said on Sept. 10 that China “cannot and will not change” policies, signaling that he will maintain the unprecedented government spending. The country is in a “critical phase” of ensuring economic growth, China National Radio reported Sept. 18, citing the Fourth Plenary Session of the 17th Communist Party of China Central Committee.
China will expand 8.2 percent this year, compared with a March forecast of 7 percent, the Asian Development Bank said last week, helping to ease concern that the nation may slow raw- material imports. A recent slowdown in imports was related to seasonality, Kong said
Kong echoed the view by Glenn Maguire, chief Asia-Pacific economist with Societe Generale SA, who said earlier this month that China’s inland projects to build more roads, railways and warehouses will continue to fuel demand for commodities.

China’s gross domestic product grew 7.9 percent in the second quarter, up from 6.1 percent in the three months through March. GDP growth slowed to 9 percent last year from 13 percent in 2007. The nation’s 4 trillion yuan ($586 billion) stimulus plan, announced in November last year, runs through 2010. "

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