Dry Bulk: The End of The Beginning or The Beginning of The End

Is it the end of the beginning in dry bulk or the beginning of the end? I am not certain, but among all of the positive dry bulk news, an investor needs to be alert. The most difficult aspect of investing in shipping equities is when to make the buy. The second, in any cyclical business, is when to reduce exposure.  By the time the need to sell becomes evident often it is too late.

We have learned the following news coming from China. One is the reappearance of Asian Swine Flu. The Chinese sow herd is currently shrinking by 3% to 5% per month, which implies less demand for soybeans. As well, to reduce air pollution in China’s Pittsburgh, Tangshan, the central government has ordered steelmakers to reduce overall emissions by 50% when a heavy pollution alert is in place. Bank of America hosted an expert call on Tangshan steel production this past week. He believes the government will adjust the production cut ratio monthly according to AQI ranking. The expert sees 30%+ going forward for this year in Tangshan.  To the extent these cuts result in lower iron ore demand, capesize rates may be pressured.

There are other worrying signs. Shipping experts have commented in Tradewinds News and other publications in the last week on Chinese steel production cuts. Their words, “Don’t worry, the production is always there.” As an investor, when anyone says, “Don’t worry,” I worry. Selling too soon is always frustrating. Then again, while no one ever got rich selling too soon, no one ever got poor either.