This page has been archived and commenting is disabled.

"Let's Just Hope Shipping Isn't Telling the Real Story of China"

Tyler Durden's picture




 

One of the recurring topics we have focused on extensively in the past few months has been the dramatic collapse of all shipping-related metrics when it comes to seaborne trade with China, from the recent record plunge in the Baltic Dry index...

 

... to Shanghai Containerized Freight...

 

... both of which are taking place even as China exports record amount of commodities to the outside world...

 

We have also repeatedly noted that the implications for both China, and the entire world, from these charts are dire because they suggest that not only is China not growing, but the entire world is now gripped in not only an earnings and GDP (in USD-denominated terms, global GDP is set to decline by several trillion dollars) recession, but also suffering its first trade contraction since the financial crisis.

 

And now, Bloomberg has turned its attention to just these, and other comparable charts, and published an article titled "Let's Just Hope Shipping Isn't Telling the Real Story of China", prudently adding that investors betting that China’s near-insatiable appetite for industrial raw materials will drive global economic growth may want to skip the shipping news.

Here's why:

For the first time in at least a decade, combined seaborne imports of iron ore and coal - commodities that helped fuel a manufacturing boom in the world’s second-largest economy -- are down from a year earlier. While demand next year may be a little better, slower-than-anticipated growth in 2015 has led to almost perpetual disappointment for shippers, after analysts’ predictions at the end of 2014 for a rebound proved wrong.

 

The article notes that China accounts for two in every three iron-ore cargoes in the world, and is the largest importer of soybeans and rice. But this year, demand has slowed to the point where any speculation that China may be growing at anything near to 7% is a joke.

Combined seaborne imports of iron ore and coal will drop 4.8 percent to 1.097 billion metric tons, the first decline since at least 2003, according to data from Clarkson Plc, the biggest shipbroker. A year ago, Clarkson was anticipating a 5.5 percent increase for 2015. The broker expects growth to increase just 0.04 percent next year.

 

It will get worse: "The China Iron and Steel Association predicted crude-steel output will tumble by 23 million tons to 783 million tons next year. That lost output is more than a quarter of what U.S. steelmakers produce."

A big reason for the collapse in Chinese demand are Beijing's attempts to crack down on excess leverage.

Imports are weakening even as China’s economy keeps expanding because of reduced spending by local governments that are dominant players in the economy, according to Fielding Chen, a Hong Kong-based economist for Bloomberg Intelligence. The central government in January withdrew guarantees for Local Government Financing Vehicles used to finance infrastructure projects during the country’s boom years, when domestic capacity surged over the past decade, he said.

 

“This has reduced China’s appetite for steel and copper and other commodities that are used to build roads, subways and reservoirs,” Chen said. “It is not good for the economy and is one of the main reasons China cannot import more.”

While China has attempted to boost the economy using monetary (cutting RRR ratios and interest rates) and fiscal (boosting spending at the local government level) stimulus, for now it appears to have cut back on the traditional growth dynamo which propelled China as the focus of global growth during the financial crisis - its relentless debt creation, which has doubled its total debt/EBITDA from just over 150% in 2007 to over 300% as of this year (282% as of 2014).

It is this slowdown in China's debt creation that is the true reason behind the global growth slowdown experienced both in China and around the globe.

Bloomberg offers a ray of hope when it notes that the rout in buying showed signs of easing last month. China’s iron-ore imports rose to 82.13 million tons, a jump of 22 percent compared with a year earlier. Even so, the extra shipments are mostly because of rising Chinese steel exports, or tolling, rather than the nation’s own demand, according to Andy Xie who predicted in February that iron-ore prices would sink into the $30s this year, compared with $71 at the start of the year.

Unfortunately, there is only so much time China can buy: Chinese steel mills have been pressured by losses, low prices and overcapacity as demand drops to levels unseen since 2009, cutting profits and reducing incentive for re-stocking. Worse, as we first showed two months ago, as a result of until recently soaring debt levels and collapsing commodity prices, more than half of indebted Chinese commodity companies are facing the grim prospect of imminent bankruptcy as they can't even cover one year of interest with their existing cash flows.

As a result, the commentary is downright disastrous:

“For dry bulk, China has gone completely belly up,” said Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo, talking about ships that haul everything from coal to iron ore to grain. “Present Chinese demand is insufficient to service dry-bulk production, which is driving down rates and subsequently asset values as they follow each other.”

 

“China’s slowdown has come as a major shock to the system,” said Hartland Shipping’s Prentis. “We are now caught in the twilight zone between shifts in China’s economy, and it is uncomfortable as it’s causing unexpected slowing of demand.”

So what can one do?

There are two options: do as the Blooomberg article sarcastically suggests, and Hope Shipping Isn't Telling the Real Story of China, or one can prepare for the mother of all mean reversions: after all it was China that dragged the world out of the second great depression (if only temporarily) when it unleashed the biggest debt-creation spree in history (one putting the Fed and all its peers to shame as we showed previously). It will be only fitting that China's drags it back in.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 12/10/2015 - 19:04 | 6907125 SILVERGEDDON
SILVERGEDDON's picture

Ho Lee Fuk !

WalMart plastic shit to gold conversion business is slowing down !

Apple - prease invent new I Vomit for sheeples and muppets soonest !

We need help with The Great Wall Mart problem, lite now.

Thu, 12/10/2015 - 19:14 | 6907167 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Magic fiat debt results in spectacular implosion. This will be epic!!

Thu, 12/10/2015 - 19:20 | 6907185 Soul Glow
Soul Glow's picture

Right?  Bank balance sheets have quadrupled debt in the last few years while decreasing the value of currency, the currency which is fiat based and holds no value anyway.

Thu, 12/10/2015 - 20:29 | 6907474 Uchtdorf
Uchtdorf's picture

I'm waiting for American Citizenism to log in and share his wisdom on the impact of these latest developments in China.

Speaking of ships, Crosby, Stills and Nash with their signature harmony: https://www.youtube.com/watch?v=Jv7FNyckr7w

Wooden Ships...on the water...

Thu, 12/10/2015 - 23:01 | 6908238 weburke
weburke's picture

Paul Kantner co wrote that song, and his band did it better !    https://www.youtube.com/watch?v=hIccZsURyLc

Thu, 12/10/2015 - 19:23 | 6907195 Flatchestynerdette
Flatchestynerdette's picture

If only the Chinese could export "service" industry in dry containers then the boat would right itself. Don't they know we don't need no stinking stuff anymore. Its all about 'service' (health,restaurants,pedicures,spas at sodosopa or shi-tpa-town) and with the ginsu m5000 that makes food for you (not an actual person) your order might be right 9.9 out of 10 times.

Thu, 12/10/2015 - 21:24 | 6907703 Nobody For President
Nobody For President's picture

No No No No - we need the Cheap Drugs China could (and does) manufacture.

Some of these asshole US pharm drugs that are ~$9,000 month for cancer patients (I know that one, wife died of cancer) or many, many other obsene rip offs - fuck China could manufacture them, ship 'em over, charge 1/100lth of US pharm prices, and still make out like bandits.

Win win, and us pharm execs can go fuck yourselves and your huge bonuses. 

Thu, 12/10/2015 - 19:03 | 6907132 ninja247
ninja247's picture

china goes down, the us goes down, the rest of the world gdp is destroyed

Fri, 12/11/2015 - 07:47 | 6909316 redd_green
redd_green's picture

wrong.

Thu, 12/10/2015 - 19:10 | 6907151 NoDebt
NoDebt's picture

Cue the next article titled "Why the US had decoupled from the rest of the world and China's collapse isn't going to be a problem".

They can just dig one up from 2007, slap a new date on it and republish.  Frankly, I think that's what most financial news stories are anyway.

 

Thu, 12/10/2015 - 21:30 | 6907741 Nobody For President
Nobody For President's picture

No Debt, I admire your keen and insive commentary. You are right on. To bad no MSM would touch you with a 10' pole, 'cause I think a lot of the sheeple would get you.

Can't have that.

Apparently, a lot of end of day financial 'news' is written by computer programs now - feed in data and let 'er rip. Such a perfect world - algos run the market, and algos write the news story about what happened today. Wonderful closed loop with no humans involved.

It may be time to switch from wine to booze...

Thu, 12/10/2015 - 21:45 | 6907824 NoDebt
NoDebt's picture

Thanks for the kind words.  You're right, I wouldn't last long in the government's propoganda arm, otherwise known as the MSM.

I'm on my second Vodka and OJ right now.  I only drink it for medicinal purposes, of course.

Mon, 12/14/2015 - 02:39 | 6920590 Nobody For President
Nobody For President's picture

Well, of course.

I'm my second wine (bottle) - long rainy Sunday spending waay too much time reading ZH.

 

Thu, 12/10/2015 - 19:15 | 6907170 DontWorry
DontWorry's picture

I guess the last consumer just maxed out her credit card.

Fri, 12/11/2015 - 07:49 | 6909319 redd_green
redd_green's picture

Naah.  They maxed out the 36% apr credit card, so they have to use the 42% apr card now.   next year it will be the 64% apr card.   Gotta give Wall street some crap to sell those collateralized debt obligations with!

Thu, 12/10/2015 - 19:35 | 6907179 Soul Glow
Soul Glow's picture

There hasn't been any real growth in the world economy in years.  All gains are nominal due to interest rates cuts and the falling value of world currency.  

How about New Zealand las night?!  The cut rates but say they will end easy monetary policy soon.  What a farce!

Thu, 12/10/2015 - 19:18 | 6907181 yogibear
yogibear's picture

A couple of years ago  the Wall Street media said the US is no longer the economic engine, but China is.

Now that China tanked the Wall Street media say the US is the economic engine.

When the US and China tank they'll say it's the weather or bad smog in China. Goes to show their rambling and clueless. Like our Fed.

 

Thu, 12/10/2015 - 20:31 | 6907490 Uchtdorf
Uchtdorf's picture

That's alright. I hear Zimbabwe is making a comeback.

Thu, 12/10/2015 - 23:12 | 6908295 Implied Violins
Implied Violins's picture

I love their currency: backed by rocks and dirt! Check out the pics:

http://zimbabwedollars.net/

At least they are backed by something real...

Thu, 12/10/2015 - 19:27 | 6907210 man of Wool
man of Wool's picture

Worrying that the two largets economies are ruled and managed by liars. If there is an economic crash we ain't going to see it coming.

Thu, 12/10/2015 - 19:58 | 6907338 aint no fortuna...
aint no fortunate son's picture

Look around you - you'll see it, its all around you

Thu, 12/10/2015 - 19:29 | 6907222 Herdee
Herdee's picture

Somebody is not telling the truth.Either it's the Fed and China or the Baltic Dry Index.

Thu, 12/10/2015 - 19:29 | 6907223 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

hmm how to translate truthiness in Chinese...

Thu, 12/10/2015 - 19:30 | 6907231 drivenZ
drivenZ's picture

shipping rates are not a tell all sign , too much other shit involved. For a real analysis read this article from 2012 from Michael Pettis. Then read his blog. blog.mpettis.com he's the real deal for china analysis. 

 

http://carnegieendowment.org/2012/09/16/by-2015-hard-commodity-prices-wi...

Thu, 12/10/2015 - 20:12 | 6907406 Quasi
Quasi's picture

Anti-virus doesn't like the blog non-hyperlink. It claims the site is attempting a javascript injection attack.

Thu, 12/10/2015 - 19:31 | 6907237 CHoward
CHoward's picture

Just keep my cheaply made adorable brightly colored lawn gnomes coming - the rest I don't give a shit about.

Thu, 12/10/2015 - 19:33 | 6907244 Ajax_USB_Port_R...
Ajax_USB_Port_Repair_Service_'s picture

Baltic Dry on the rocks. Ah, that's some smoooth vermouth.

Thu, 12/10/2015 - 20:02 | 6907352 valjoux7750
valjoux7750's picture

People need to get it in their heads that your not always gonna make more than the year before. So what..deal with it!! 

Thu, 12/10/2015 - 21:05 | 6907620 scintillator9
scintillator9's picture

Most people have been dealing with that for the past decade, many more since 1971 when adjusted for inflation.

 

Thu, 12/10/2015 - 19:37 | 6907257 Ajax_USB_Port_R...
Ajax_USB_Port_Repair_Service_'s picture

We gotta move those plastic Santa’s. We gotta move those color TV's!!!!

Fri, 12/11/2015 - 05:41 | 6909172 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Don't forget the refrigerators.

Thu, 12/10/2015 - 19:36 | 6907259 Caveman93
Caveman93's picture

No actually...let us hope. This shitshow needs to collapse soon.

Thu, 12/10/2015 - 19:41 | 6907260 Caveman93
Caveman93's picture

Duplicate.

Thu, 12/10/2015 - 20:02 | 6907331 THE DORK OF CORK
THE DORK OF CORK's picture

Who cares if a Maoist pig iron economy goes belly up.

What matters is the local.

Can you buy that loaf of bread,  do you have enough company tokens to go for a few beers with your mates

 


I am sick to shit of this grand talk.

on Irish tv at the moment they are debating grand foregin policy of stopping the Yanks using the Shannon base  when the local democracy cannot even stop water rentier charges.

 

The entire construct is absurd on a level even my previous wild imagination can not comprehend.

The lack of equilibrium in society is gigantic in scale and consequence.

A society now completely divorced from the good common sense of its pre capitalistic peasant past.

Thu, 12/10/2015 - 21:33 | 6907764 Nobody For President
Nobody For President's picture

Green that - All politics are local.

Thu, 12/10/2015 - 22:19 | 6908002 Osmium
Osmium's picture

So the Irish are paying attention.  Last time I was in the UK, the only thing on the Tee Vee was darts.

"One hundred and forty"!

Thu, 12/10/2015 - 20:10 | 6907375 Wild Theories
Wild Theories's picture

"It is this slowdown in China's debt creation that is the true reason behind the global growth slowdown experienced both in China and around the globe."

 

Total fucking bullshit, it is the slowdown of western consumption that is the true reason behind the slowdown in China, which in turn is the reason for the slowdown in all primary resource producers. The debt growth was China's feeble attempt to "stimulate" growth and stave off the slowdown, but without consumption from the west no amount of stimulus on their part can step up to the plate to replace western demand.


You live in a economically globalized world now, moron. We've all been living in a globalized economy for decades now, so pull your head out of the fucking sand.

The whole world is one giant supply-chain, if manufacturers(China) are slowing down it's because consumers(we in the west) are not consuming, simple as that.

Thu, 12/10/2015 - 20:41 | 6907526 Uchtdorf
Uchtdorf's picture

Yours is not such a wild theory after all. Now all that remains to be seen from the Chinese is whether these slowdowns, Chinese and Western, cause a serious dent in precious metal demand from the society with 5,000 years of history.

Thu, 12/10/2015 - 21:45 | 6907833 Nobody For President
Nobody For President's picture

And consumer in the West are not consuming because our real incomes have been declining, especially since the great 'recovery', as the excess liquidity get funneled to the .01%. You nailed it, WildT.

Fri, 12/11/2015 - 02:11 | 6908929 neilhorn
neilhorn's picture

"it is the slowdown of western consumption that is the true reason behind the slowdown in China, which in turn is the reason for the slowdown in all primary resource producers."

But, according to MSM, consumers are 70% of the US economy.

This farce was exposed in the 60's when the average Joe realized he could not keep up with the next door neighbor. Faster cars, bigger houses, fancier toys, and credit cards had their status in those days when people had real jobs, jobs that created wealth for their family.

It has taken today's consumer this long to realize that more junk does not equate to happiness. Shopping sprees are not nearly as much fun when the job hours do not support the spend rate. Debt and worrying how to repay it have a damping effect on the the modern household tranquility.

Today's shopping spree involves a decision of what vegetable or meat does your family like that you can afford to eat. Hopefully it is a meal that does not contain a large dose of poisonous chemicals, and maybe pick up a plastic toy for the kids.

Thu, 12/10/2015 - 20:11 | 6907402 kelley805
kelley805's picture

J.P. Morgan analysts wrote that the three best leading indicators for recession have been credit spreads, the shape of the yield curve and profit margins.

Here are some signs of a coming recession.

1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.

http://www.marketwatch.com/story/deteriorating-junk-bonds-flash-warning-signs-for-stocks-2015-12-07?dist=afterbell

2. Factory orders continue to drop

http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row

3. Default risk spikes

http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high

4.  M&A set record

http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/  

5. Iron ore prices tumble

http://www.marketwatch.com/story/iron-ore-prices-keep-crashing-adding-to-global-growth-fears-2015-11-30

6. Baltic dry shipping index tumbles

http://www.marketwatch.com/story/shipping-index-falls-to-all-time-low-stoking-fears-about-global-growth-2015-11-19

 

Here is how to prepare.

http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

 

Here is how to get your mind off this stuff.

http://michaelekelley.com/category/humor/

 

Good luck!

Thu, 12/10/2015 - 20:20 | 6907437 THE DORK OF CORK
THE DORK OF CORK's picture

What matters is the last decent bread making shop that you could walk to in my city closed during the euro years

What matters is the local.

China would matter if I was allowed to burn coal again.

But the wholesale price of the stuff is of no importance given the scale of local usury taxess

Even if the taxes were lifted laws prevent me from burning the stuff.

We all live inside a global prison.

It's been that way on these islands for nearly 500~ years now

There is only one form of capitalism boys and girls.

Finance capitalism

It is not interested in rational production /consumption

 

It's objective is waste,  waste to sustain financial concentration. 

Thu, 12/10/2015 - 21:34 | 6907767 lakecity55
lakecity55's picture

I say we find some coal and burn it, baby!

Fri, 12/11/2015 - 00:09 | 6908589 Deathrips
Deathrips's picture

Its called neofuedalism.

The chain and whip is the fact that they can create in an instant out of nothing that which you/me trade your/my whole life for. Like a vampire sucking your blood. Once invited in you know how the story ends.

 

Long Rope, Long Physical.

 

RIPS

Thu, 12/10/2015 - 20:21 | 6907440 Barnaby
Barnaby's picture

Black Friday I did my part and bought a new battery for my Asus 7" MeMo tablet and they said it would arrive January 13. It arrived today, Asus-branded and awesome. From China. Installed, flawless.

Drop ship appears quite excellent.

Thu, 12/10/2015 - 21:08 | 6907629 Stormtrooper
Stormtrooper's picture

Do what Chinese are doing.  Buy gold.  The reset is upon us and the great unwashed masses are going to be forced to learn the definition of money.

Thu, 12/10/2015 - 21:09 | 6907635 Stormtrooper
Stormtrooper's picture

Oh yeah, and make sure to purchase lots of ammunition to defend your stash.

Thu, 12/10/2015 - 21:10 | 6907643 Stormtrooper
Stormtrooper's picture

Oh yeah, and don't forget that the distribution system will fail so make sure that you have plenty of food supplies next to the ammo.

Thu, 12/10/2015 - 21:12 | 6907648 Stormtrooper
Stormtrooper's picture

Oh yeah, don't forget that the power system will collapse so don't forget to make basic off grid arrangements for cooking and heating.

Thu, 12/10/2015 - 21:14 | 6907657 Stormtrooper
Stormtrooper's picture

Oh yeah, and don't forget basic medical supplies like antibiotics(see Lambert aquatic supplies) and first aid, dental supplies.

Thu, 12/10/2015 - 21:33 | 6907758 lakecity55
lakecity55's picture

Check. We're good.

Thu, 12/10/2015 - 21:13 | 6907651 hedgiex
hedgiex's picture

China's real economy matters more than its financial economy. So up goes its debt/GDP to extend/pretend and down goes the Yuan. China is exporting a global in demand product i.e. deflation.

Thu, 12/10/2015 - 21:13 | 6907653 scintillator9
scintillator9's picture

Harpex has been following the Baltic dry index, (Hint, down)

http://www.harperpetersen.com/harpex/harpexVP.do

And, even Chinese electricity usage is down.

http://www.icis.com/blogs/chemicals-and-the-economy/2015/07/china-electr...

I did enjoy reading the spin from the EIA in regard to US electricity usage, and appliance efficiency.

http://www.eia.gov/todayinenergy/detail.cfm?id=10491

 

Thu, 12/10/2015 - 21:31 | 6907749 lakecity55
lakecity55's picture

"Our Plan is almost complete. Soon we will Rule the World.
"Call the Orange French chick for another esoteric speech."

--TPTB

Thu, 12/10/2015 - 22:30 | 6908065 joego1
joego1's picture

Get the turnip crop in it's gruel from here on out.

Fri, 12/11/2015 - 00:06 | 6908569 lucky and good
lucky and good's picture

To most of the world China's economy remains veiled behind a shroud and is far from transparent. Not only because China is far away from our shores, but the fact is their economy is very controlled by the government that acts as its puppet master and corruption has flourished. The bottom-line is we often have a difficult time getting real information on what is happening. To many of us it has become clear that China is in a situation similar to what America faced in 1929 following a period of rapid growth and credit expansion.

This is written not to diminish the accomplishments of China or to question their progress, but to point out much of what we have witnessed is the result of one time factors that have largely played out. Several factors have drastically changed politically, socially and from a military perspective since the days when America fueled China's growth. The article below titled, "China's Veiled Economy" highlights some of the reasons for doubting China.

 http://brucewilds.blogspot.com/2015/12/chinas-veiled-economy.html

Fri, 12/11/2015 - 00:19 | 6908636 kappal_toba_dhu...
kappal_toba_dhurr_ne_thook's picture

More likely CCP will lose power, and the country will split up. As it is many don't consider themselves Chinese, and the minorities face harsh discrimination.  

Fri, 12/11/2015 - 01:27 | 6908836 rushjob
rushjob's picture

Could we say that decoupling of US and China economy has now occured?

 

Before US exported manufacturing to China and expanded credit. China made stuff and shipped it to US for which US paid with IOUs. Thus economies were coupled and millions of Chinese workers coming from inland were included. Even as FED expanded credit there were many cheap labourers to absorb it. FED was able to print, Americans were able to spend foodstamps at Walmart and China built factories and employed farmers. But since FED kept expanding credit we were to come to a point where benefit of lending more money to Americans and expanding manufacturing outweights the risk of not getting paid.

Could we say this point has arrived?

Fri, 12/11/2015 - 03:05 | 6909001 honestann
honestann's picture

I'm sure a large part of the reason the Baltic Dry Index has fallen so far is the entry of the entire world into depression and collapse.

HOWEVER... I want to keep that chart in proper perspective.

IF the Baltic Dry Index is "price per mass" (ton) or "price per volume" (standard container), the chart may be somewhat exaggerated during the past few years.

Why so?  Here are some reasons and possibilities:

#1:  0% interest rates convinced many shipping companies to buy lots more big honking shipping vessels, which created a huge oversupply of shipping capacity and thus greater competition at this point.  I'm not sure about this one, but makes sense.

#2:  The price of oil to power those shipping vessels is increasingly low in recent times.  I have to assume the majority of the expense for shipping a vessel across an ocean is fuel.  This one seems obvious (but magnitude is unknown to me).

#3:  The dollar has been strong in recent times.  So if the price is measured in dollars, one would naturally expect to get "more shipping per dollar" simply due to USD strength.

#4:  Hahaha.  I had another, but forgot it already (but it was rather obvious).  I'll add this one when I remember if nobody has replied.

-----

HOWEVER, the real inflation rate has been 6% to 10% in recent times, and that works in the opposite direction (increases price).  Except the main costs in shipping may be the exceptions (fuel cost, financing cost), which have had negative inflation rates lately.

-----

Note:  This entire message assumes BDI is a price.  If BDI is not a price, then everything I said above is bogus, and everyone should ignore this stupid message!  Can someone confirm whether BDI is a price... or not?

Do NOT follow this link or you will be banned from the site!