This page has been archived and commenting is disabled.
Global Trade To Remain Subdued Until At Least 2020, Goldman Says
In early March, Maersk chief executive Søren Skou delivered a stinging blow to those who claim the epic decline in the Baltic Dry Index is representative not of sagging worldwide demand, but rather of severe oversupply, and is thus no longer a reliable indicator when it comes to assessing the state of the global economy. Skou told FT he sees container demand “towards the low end” of the 3-5% growth range the company forecasts for 2015. If Skou is correct, it would mark a Y/Y decline in growth for the company, which handles around 15% of all seaborne freight. Skou also flagged the generally sluggish pace of global economic growth, noting that “the economies in Europe are still very sluggish. Brazil, Russia and China: those three economies used to drive a lot of growth, and right now we are not really seeing that to the same extent. The only real bright spot is the US, and even the US is good but not great.” This led us to remark that “yes supply isn't helping, but it is the lack of global demand that is pushing equilibrium levels lower, aka global deflation.” Later in the month, we flagged further declines in shipping rates as evidence that global trade was grinding to a crawl.
Meanwhile, we’ve exhaustively documented the laundry list of signs that point to dramtically decelerating economic growth in China, including falling metals demand, collapsing rail freight volume, slumping exports, a war on pollution that may cost the country 40% in industrial production terms, and, most recently, a demographic shift that’s set to trigger a wholesale reversal of the factors which contributed to the country’s meteoric rise. All of this means that the world’s once-reliable engine of demand is set to stall in the years ahead.
Finally, we’ve been keen to note that CB policy has had the effect of allowing otherwise insolvent companies to stay solvent by tapping investors at record low borrowing costs contributing to a supply glut and, ultimately, to deflation.
Consider the above and then consider the following, from Goldman, who now predicts the intersection between soft commodity markets and the Chinese transition from investment to consumption will weigh on dry bulk trade — and by extension, on shipping rates — until at least 2020.
Via Goldman:
The transition from investment to consumption in the Chinese economy, together with a shift towards cleaner energy sources, has caused a sharp deceleration in dry bulk trade. After expanding at an average annual rate of 7% over the period 2005-14, seaborne demand in iron ore, thermal and metallurgical coal is set to increase by only 2% in 2015 to 2.5 billion tonnes as these trends persist. In the steel sector, domestic consumption growth ground to a halt in 2014 and the prospect of peak iron ore demand is nigh. In the power sector, demand for coal-fired generation is suffering from a combination of weaker economic growth, rising energy efficiency and a diversification in the fuel mix towards renewable energy, natural gas and nuclear. There are no other markets large and/or dynamic enough to offset a slowdown in China in the foreseeable future, and we forecast trade volumes to stabilize in the period to 2018.
Meanwhile, shipyards churning out large dry bulk carriers in expectation of a sustained period of strong demand for commodities now find themselves adding unwanted capacity into an oversupplied freight market. The two largest dry bulk vessel types, panamax (c.75,000 DWT2) and capesize (c.180,000 DWT), benefited the most from the bull market in iron ore and coal. The size of the fleet doubled between 2008 and 2015, and current order books will ensure that shipping capacity continues to grow until 2017, when vessel retirements will finally outweigh new deliveries.
The divergence between demand for freight and the capacity of the vessel fleet reflects the time lag between the mining and shipping sectors. In both industries, supply responds to price: rising commodity prices in a tight market leads to investment in new mining capacity in the same way that rising freight rates encourages greater activity in shipyards. On that basis, the mining sector moves first by ramping up export volumes and the shipping sector moves next, responding to rising trade volumes by investing in new vessels. Conversely, mining companies will be the first to respond in a bear market by curtailing investment, while the delayed response from ship builders will result in overinvestment and excess capacity.
The daily charter rate for a capesize vessel has declined from a peak in excess of US$100,000 in 2008 down to its current level below US$10,000. Faced with the risk of leaving vessels idle over long periods, we believe that ship owners will charge charter rates that are range bound between the cash cost of operating the vessel and the accounting break-even rate. This compounds the impact of lower fuel prices, resulting in a period of cheap freight that should last until older vessels have been scrapped in sufficient numbers to balance the market, most likely beyond 2020.
In other words: not bullish for global trade/demand. So as we anxiously wait to hear from those who claim it's all about oversupply and nothing to do with the fact that between a decelerating China and the utter failure of central bank policies to stimulate demand to soak up a global supply glut which QE has to a large extent facilitated, we'll leave you with a fresh look at the Baltic Dry Index which, all things equal, signifies a global depression of epic proportions.
- 8787 reads
- Printer-friendly version
- Send to friend
- advertisements -





Oh shit, NoDebt! Your nachtmare come true! 40 years of Slumber and Misery!
Ja shure. This is the problem. Blame it all on solar energy in Northern Europe,
where they see one stray photon pass through the fog every hour.
Fuck Global Trade Buy Local ( and only if you absolutely need it ).
Starve the BEAST.
Why not buy all your things on Alibaba or eBay directly from China? That will really starve the beast. 10 day delivery, just plan for it.
Also, find local Muslim businesses. Only support them.
Your version of buy local means pay local and federal sales tax. How does that starve anything?
You would buy canned goods (or any food-item or several categories of items) from Alibaba or eBay? Good advice.
I guess you go around buying canned food all the time.
Quick questions:
What do you wear used corn cans? What do you sleep on can sheets? What do you connect to the internets with? Your can computer?
I would agree with that but not only should you not believe scumbag Goldman Sachs but question everything......good luck with "local" anymore
eBay To Expand Expedited Shipping From U.S. to Russia
UK Hamley’s Toy Store Opens Flagship Outlet……in Moscow
NY Botique Watchmaker Seize sur Vingt Opens Moscow Store
Ford Expands in Russia As It Buys Sollers
Western Business Likes Russian Oligarchs So Much……It Let Them Buy The Company
Nobody gives a great back rub and hand job like a Chinawoman. I myself will certainly continue to trade with them.
We should always invest a little time and money in happy endings.
ROTFLOL/
In early March, Maersk chief executive Søren Skou delivered a stinging blow to those who claim the epic decline in the Baltic Dry Index is representative not of sagging worldwide demand, but rather of severe oversupply, and is thus no longer a reliable indicator when it comes to assessing the state of the global economy.
Doesn't Iran have one of this guys boats? The guy must be long "Lloyds of London" and short Somali Pirates...
Fuck Goldman Sachs
The Ugly Truth
https://theuglytruth.wordpress.com/
SAMPLES OF ISRAELI HORRIFIC BRUTALITY AND WAR CRIMINALITY IN GAZA (here's Johnny pic)
https://theuglytruth.wordpress.com/2015/05/07/samples-of-israeli-horrifi...
Didn't Goldman say a few months ago when the Ruble was at 65 per USD, coming off 70, that it would see 70 again before it saw 60, yet it has instead gone to 50.
Makes me wonder if I should buy FRO and DRYS now.
Here are some more signs of a coming recession.
http://michaelekelley.com/2015/04/28/next-recession-will-start-with-this-country/
http://michaelekelley.com/2015/03/02/why-another-recession-is-coming/
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
Here is how to prepare yourself.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Good luck!
"Here is how to prepare yourself."
Good advice, but you forgot to add:
"Since everything will be destroyed in this way, what kind of people ought you to be? You ought to live holy and godly lives as you look forward to the day of God and speed its coming." - 2 Peter 3:11-12
Ring Ring
Cluephone:
There is no Magic Sky Daddy.
STFU
Arrest Lloyd Blankfein.
Moribund, I get it.
By golly, Timothy Leary would know what to do...
Gubberment Sachs is attempting to forecast blue sky somewhere down the road, but there is NO blue sky on the horizon, or beyond the horizon. Each and every day they continue to attempt massaging expectations in order to promulgate the BIG lies of management competence in order to mask industry incompetence writ large. In point of fact, Gubberment Sachs is simply attempting to buy moar time on our dime.
The CRASH is empirically certain, and will manifest before 2020, Mr. Vampire Squid Blankfein.