China’s manufacturing activity and shipping
China’s manufacturing activity is a key driver for shipping companies. The country’s trade volume drives the bulk of the global shipping industry. The industry transports resources such as iron ore, coal, and oil. When China’s manufacturing activity rises, it’s generally favorable for shipping companies.
China’s purchasing managers’ index contracts for fourth month
China’s final reading of the manufacturing PMI (purchasing managers’ index), released by HSBC on June 30, came in at 49.4. This is below the preliminary reading of 49.6. Factory activity in China has been below the 50 mark, which separates contraction from expansion, for the last four months. Although the PMI is above last month’s final reading of 49.2, it’s still in the contraction zone, suggesting continued weakness in the economy.
According to Annabel Fiddes, economist at Markit, “This was predominantly driven by the sharpest rate of job shedding across the sector since early-2009 while output also fell slightly on the month.”
Weak manufacturing activity is negative for dry bulkers
Manufacturing activity has been weak in China for a number of months. This doesn’t bode well for an already depressed dry bulk carrier market and companies including Navios Holdings (NM), Diana Shipping (DSX), Golden Ocean Group (GOGL), and Star Bulkers (SBLK).
The Guggenheim Shipping ETF (SEA) generally follows the Dow Jones Shipping Index. It’s also negatively impacted by a contraction in China’s manufacturing sector. Golden Ocean Group accounts for 4.9% of SEA’s holdings.
In contrast, the SPDR S&P Metals and Mining Index (XME) gives investors exposure to the diversified metals and mining space.