Germany’s December factory orders may not be that bad

Germany&#8217;s December factory orders may not be that bad

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Germany is Europe’s largest economy and has helped cover China’s steel production increase for the past five years. Therefore, rising factory orders in Germany is positive for China because the country can export more steel. As China is also the largest importer of dry bulk products (number one for iron ore and second in coking coal globally), which are the main materials used in steel manufacturing, dry bulk shipping companies will also benefit.

During December 2012, Germany saw a 1.8% reduction in factory orders compared to the previous year’s level. At first glance, this is negative because falling factory orders reduce demand for steel and shipping demand. However, it is worth noting that December 2011’s factory orders did not fall on a year-to-year basis, whereas the adjacent months, November and January, saw declines of ~5%. This may suggest that 2011’s December orders were inflated, which could have exaggerated the reduction in December 2012’s factory orders compared to November 2012’s. If so, investors may want to put less emphasis on this December data and wait for January  to see whether factory orders will fall further.

On the positive side, factory orders have gradually fallen less since September, following several government interventions to prop up global demand. As long as the upward trend holds, this metric points to a positive outlook for shipping firms such as DryShips, Inc. (DRYS), Diana Shipping, Inc. (DSX), and Eagle Bulk Shipping, Inc. (EGLE). This also benefits the Guggenheim Shipping ETF (SEA), an ETF that invests in large shipping companies world-wide.

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