LBX

Baltic Dry Shipping Index: If It Really Is a Proxy for the Economy, We're in Trouble

The real trouble is in China.

That is what Baltic Dry is really telling us.

Chinese demand is imploding.

Baltic Dry Freight Index Indicates Impending Recession

I don't think people get it.

The crash is caused by a massive decline in Chinese domestic AND international demand for manufactures.

Chinese power generation (read coal) is up a miserly 3% in Sept. YOY. That is blamed on Olympics, etc. but it is far too big a drop to be just blamed on that --- Chinese businesses and consumers are cutting back consumption of electricity big time. It was growing at 11-15% a year since 2002.

There is a huge glut of real estate (residential, commercial, industrial) in China that is causing construction to grind to a halt (unless it is reconstruction in Szechuan). The core issue for residential is that most of the apartments in big cities are way beyond the local populations income to own, so they were bought as speculative investments who have now disappeared with prices imploding. Industrial real estate --- tons of empty factories as the export business caves.

This means lots less need for iron ore (rebar, structural steel, etc.), copper, aluminum, (wiring), cement (clinker), etc. Prices of steel on the Chinese market is caving, as is the price of copper, etc.

China is not going to stop importing iron ore, but they sure can halt demand growth for a while.

The bottom line is that shipping rates will fall through the floor now that capacity has overwhelmed demand (which caved).