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Thursday, July 09, 2009


commodities rolling over

ambrose evans-pritchard in the telegraph highlights some of the more obscure shipping data as a potential tell.

Amrita Sen at Barclays Capital says the number of Baltic Dry ships waiting to berth — mostly in China and Australia — has begun to fall after peaking at 154 in mid-June.

The Capesize Iron Ore Port Congestion Index (a new one for me, I must confess) is replicating the pattern seen a year ago just before the commodity boom tipped over.

“The anecdotal evidence we are hearing is that vessel queues have been falling. There are reports of cancelled tonnage from China pointing to a slowdown in Chinese buying of coal and iron ore.

“We are definitely expecting a correction. People have been building stocks of iron ore too quickly in anticipation of the stimulus package in China,” she said.

The Baltic Dry Index measuring freight rates jumped 450pc in the first half of the year on the China rebound, but has begun to fall back over the last two weeks. (Sen doubts freight rates will recover much since 1000 new ships are hitting the market this year and again next year, compared to 300 in normal years. There is obviously a horrendous shipping glut).

Over at Naked Capitalism they are reporting that international port traffic for containers (ie finished goods) is as dire as ever. The rates for 40-foot container from Asia and America’s West have actually fallen this year from $1,400 to $920.

“There has never been a decline like this before,” said Neil Drecker from the Drewry Report. “The container industry is looking at a $20-billion black hole of losses. We can expect a lot of casualties.”

unlikely to be merely coincidental, a screen of recent commodities shows a big selloff underway in june. it's most pronounced in agricultural commodities, but very evident in industrials -- crude oil (-19%), unleaded gasoline (-20%), aluminum (-8%), copper (-11%), lumber (-17%), and platinum (-15%).

it is a commonplace that china was a massive mover in q2 with stimulus-induced commodity stockpiling. while statistical reporting from china in times of crisis is perhaps of the quality one expects out of a mildly totalitarian government, it does appear that a massive impulse of forced bank lending and forced borrowing has provide an impulse to the chinese economy of some kind. the intermediate-term concern is that the chinese banking system just got saddled with a pile of highly questionable loans; short-term, however, is the worry of what happens when the impulse stops.

this indeed would appear to be taking place now in china, per ft alphaville.

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