Why China’s March PMI is positive for dry bulk shippers

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China’s official PMI

For the month of March, China’s official PMI (purchasing managers’ index) inched up to 50.3 as compared to 50.2 recorded in February, allaying fears of slowdown in the world’s second largest economy and a key driver of dry bulk shipping stocks such as DryShips Inc. (DRYS), Navios Maritime Holdings Inc. (NM), Diana Shipping Inc. (DSX), Navios Maritime Partners LP (NMM), and Safe Bulkers Inc. (SB). Economists and analysts were expecting a drop to 50.1. While industry drivers remain important to dry bulk shipping companies’ performance, macro fundamentals remain just as important–take the stock market meltdown in 2008 and large sell-off in 2011. Analysts often view figures above 50 as expansionary, which are considered positive over the medium or long-term.

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Analysts view that the PMI from the National Bureau of Statistics provides a clearer picture of the overall economic conditions given the larger industry coverage. Despite government’s domestic restructuring efforts to reduce excess capacity in five major industries, particularly steel and cement, the improvement in the government official PMI suggests such goal will take time, as voiced by industry representatives in China.

Sub-indicies

Output rose to 52.7 from 52.6 in February; new orders climbed to 50.6 from 50.5; and employment increased to 48.3 from 48. The input and output price components of the official PMI declined sharply, indicating that deflation in China’s industrial sector is likely to continue because of excess capacity and weak global commodity prices. However, this isn’t necessarily negative.

While March’s data was positive, several economists said it was quite weak, given that activity typically picks up more after the Lunar Holidays. Still, such level is weak enough for the government to talk about measures to support growth. According to a Reuters article, Premier Li Keqiang said during the last week of March that “the necessary policies were in place and the government would push ahead with infrastructure investment.” So regardless of whether the PMI is interpreted positively or not, dry bulk shippers should benefit.

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