China’s manufacturing activity is a key driver for shipping companies. The country’s trade volume drives the bulk of the global shipping industry that engages in the transportation of resources such as iron ore, coal and oil. When China’s manufacturing activity ticks up, it is generally favorable for shipping companies’ revenues.
January Manufacturing Activity Ticks Down a Little
On February 1st, 2013, the China Federation of Logistics and Purchasing (CFLP) announced a purchasing managers index (PPI) of 50.4 for the month of January. Although widely different from analysts’ median estimate of 51.0 surveyed by Bloomberg, and lower than the prior two months of 50.6, it is still above the 50 mark that analysts often target for expansion. Figures below 50 are often seen as contractionary.
The PMI Survey Size Was Increased
According to CFLP, the survey size for PMI data had increased from 820 to 3,000, and will continue to be 3,000 going forward. In such case, it is probably best to put less significance on the difference between January and December’s figures that were reported by China. Otherwise, we may be comparing different sample sets. Investors may want to rely more on HSBC’s PMI statistics for China, which focus more on smaller, private companies, and less on state run enterprises. This is due to the fact that, often, state run enterprises receive much more favorable treatment by the government and by large state run banks in China.
Above 50 reading Is Still Positive for Shipping
While January PMI fell from December’s data, 50.4 is still positive for the shipping industry, which includes companies such as DryShips, Inc. (DRYS), Diana Shipping, Inc. (DSX) and Teekay Corp. (TK). The Guggenheim Shipping ETF (SEA), which generally follows the Dow Jones Shipping Index, will also benefit from expansion in China’s manufacturing sector.