Although now the third largest country in terms of gross domestic production, Japan is still an important player in the global shipping industry. Known as the country with little resources, being forced to rely on export by creating high quality machines that use iron ore and coal, the country’s industrial production activity often follows the demand for dry bulk shipping. When Japan’s industrial production rises, demand for shipping tends to rise as well.
Industrial production rises, supporting bottom
The index for Japan’s industrial production rose to 88.8 in December after falling from 87.9 to 86.7 in the November 2012. The data was revised on February 15th, almost two months after the end of the reporting month. Rise in December’s figure supports the case that industrial production has bottomed throughout October and November, after the country’s central bank moved to drive yen down and the government laid out $~225 billion fiscal stimulus to prevent the country from falling further into recession.
Lower yen and fiscal stimulus driving demand and production
Lower yen makes Japanese manufacturers more competitive. Whilst luxury shoppers in Japan may be hurt because it is more expensive to import goods, and other countries such as Korea have become less competitive, lower currency rates tend to increase demand just like the days when Walmart announced special discounts that encouraged people to buy more. The government’s announcement of $~225 billion fiscal stimulus should also support higher raw material demand in the short to medium term.
Demand for raw material shipments should rise
As the largest importer of coking coal, and second in iron ore (that is used to manufacture steel), dry bulk shipping companies should benefit from lower yen and fiscal stimulus. Tankers that transport oil will also benefit because oil is Japan’s largest import by-product. These include publicly traded companies such as Diana Shipping, Inc. (DSX), Ship Finance International, Ltd. (SFL) and Knightsbridge Tankers, Ltd. (VLCCF). The Guggenheim Shipping ETF (SEA), which invests in shipping companies world-wide, and a popular Japanese ETF, iShares MSCI Japan Index (EWJ), will benefit as well.