While global trade may be starting to rebound, the shipping industry isn’t.
The reasons: China is curbing commodity imports to slash overcapacity while a record number of new ships are hitting the water, Bloomberg reports.
Lease rates for capesize ships, which are three times the size of the Statue of Liberty, will plunge almost 50 percent to as low as $18,000 by year-end according to a Bloomberg survey of six analysts and fund managers.
Shipping rates already have plummeted 59 percent from their 2009 high.
As for China, its State Council is studying how to cut overcapacity in industries such as steel and cement. Already, imports of refined copper fell 23 percent in July from June.
“China could very easily turn the taps off,” Will Fray, an analyst at Maritime Strategies, tells Bloomberg. “Rates will keep sliding.”
As for ship supply, a record 146 capesizes will join the fray this year, according to Fearnley Consultants.
“The pressure of the new ships will be overwhelming,” Andreas Vergottis, research director at Tufton Oceanic, manager of the world’s largest shipping hedge fund, tells Bloomberg.
“It will take a lot of time and a lot of pain before shipping recovers.”
Another shipping indicator, the Baltic Dry Index also shows signs of weakness.
The index has tumbled about 43 percent since peaking June 3, CNBC reports. That followed a whopping 547 percent gain since Dec. 5, 2008.
The drop indicates the world economy is in trouble, Tony Sagami of Weiss Research tells CNBC.
Meanwhile, Forbes magazine editor Paul Maidment warns that overcapacity is such a problem it might well destabilize the Chinese political establishment.
Growth rates have been based on stockpiling of raw materials and finished goods as a result of easy credit bank lending, Maidment explains.
An inability to maintain that growth in the face of a global recession does not bode well for the government unless either the world economy recovers, domestic consumption increases or both, Maidment warns.
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