Car sales and steel demand
Steel demand directly affects the demand for iron ore, which makes up nearly 30% of dry bulk shipping. Since steel is one of the most crucial inputs for automobile manufacturing, demand for steel should rise when automobile sales rise.
China’s auto sales slump in June
The above graph shows the trend in auto sales in China (FXI). Sales fell by 2.3% year-over-year in June to 1.8 million vehicles. China’s Association of Automobile Manufacturers has also lowered its estimate for auto sales growth in 2015, from 7% down to 3%. All at once, Chinese slumping equity markets are shaking consumer confidence, while restrictions on vehicle registrations are also putting pressure on auto sales.
Slump in auto sales impact dry bulkers
A slowdown in China’s automobile market is negative for steel demand, iron ore import growth, and ultimately, for shippers transporting iron ore from faraway destinations to China. These dry bulk shippers include Scorpio Bulkers (SALT), Diana Shipping (DSX), Navios Maritime Holdings (NM), and Golden Ocean Group (GOGL). These companies also haul other dry bulk materials such as coal and grain across the ocean.
The SPDR S&P Metals and Mining ETF (XME) invests in industries such as steel, coal, and consumable fuels, gold, precious metals and minerals, aluminum, and diversified metals and mining.