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China’s thermal power output growth dropped 75% from late 2013
Excess debt and capacity aren’t the only problems facing China. As pollution rises, the Chinese government is putting greater emphasis on environmental sustainability.
Since iron ore is primarily used to manufacture steel, and China is the largest producer and consumer of the two commodities, China’s crude steel production is a key indicator that dry bulk shipping investors should watch.
Weak manufacturing activity in China is putting pressure on China’s oil consumption, crude oil imports, and demand for crude tankers.
Even if more product oil is shipped from the United States to Europe and Europe decides to import less crude oil, higher consumption could offset a decrease.
For the week ended April 18, 2014, total products supplied stood at 18,051 thousand barrels per day, as compared to 18,414 thousand barrels a day for the prior week
As of the beginning of April, China’s total iron ore inventory at ports amounts to about 107.65 million metric tonnes, compared to 74.9 million metric tonnes in April 2013.
Based on the last five years of data, valuations are on the higher end. However, investors should note that people have been afraid to put their money into the stock market.
As the Guggenheim Shipping ETF (SEA) and dry bulk shipping companies trade on the public stock market, day-to-day movements in share prices are also subject to market psychology.
As the United States is the largest oil consumer, U.S. oil consumption patterns will continue to sway the Guggenheim Shipping ETF (SEA) and tanker companies’ outlooks.
Indonesia’s ban on unprocessed nickel and bauxite can drive down shipping rates in the short run—especially for smaller dry bulk vessels that are more often used to transport minerals.
As a major producer and exporter of oil, gas, and minerals (including gold, nickel, copper, tin, and thermal coal), Indonesia’s exports account for a significant share of Indonesia’s GDP.
While oil consumption doesn’t directly affect crude trade and tanker rates, it nonetheless often reflects positive economic fundamentals and tends to support crude tanker demand.
As most investors know, the United States has been a large importer of crude oil. It still is, even though it may not be the biggest “net importer” anymore, having been replaced by China.
Since oil is used to run automobiles, auto sales growth affects crude oil demand growth. This, in turn, affects demand for oil tankers used to transport oil across the water.
China’s crude steel production figures remained weak in February 2014, with year-over-year growth dropping to just 0.40%.
High inflation is negative, as it encourages the central bank to cool down “hot money,” whereas low inflation provides the central bank a tool to loosen stimulus to support growth.
One of the key indicators that grabs analysts’ attention is China’s new loans. Issuing new loans is an important way of stimulating economic growth, as it increases demand.
Last Friday, China’s Shanghai stock exchange jumped on expectations that the government would do something to prop up growth a bit. On March 24, it jumped again.
On an industry level, crude tankers might be at the start of a multi-year turnaround. But crude tankers may also be a good option for investors if they don’t believe China will see a crash.
China’s crude steel production figures were weak in January 2014, slipping into negative year-over-year growth of 9.32% after showing robust growth of ~10% in 2013.