Posts Tagged ‘commodities’

The QE Trade Road Map From the Bloomberg Brief: Economics

November 3rd, 2010 Michael McDonough Comments off

When the Federal Reserve launched its unprecedented program of quantitative easing in early 2009, it was difficult to predict how various asset classes would react. Now, as the Fed considers a second round of asset purchases, the first program has left a blueprint of sorts behind that could be useful in predicting how markets might respond. The table here shows, as measured by R^2, how strongly the fluctuations in a variety of assets are correlated with the level of securities held by the Fed during the first six months of 2009. The table also displays the performance of these assets during the first half of 2009, as well as in the period since Fed Chairman Benjamin Bernanke’s Jackson Hole speech, where he laid out the case for additional quantitative easing.

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**This is an excerpt from the Brief published on 10/29/10**


China’s Real Estate Free Fall May Not Bode Well For Commodities

June 21st, 2010 Michael McDonough Comments off

China’s plummeting real estate transactions could spell trouble for domestic steel and cement industries.  The average number of real estate transaction in China’s 15 largest cities fell 75% on an annual basis according to the most weekly June release according to Goldman Sachs.  On a ytd basis transactions have declined -29%.  The Chinese government has been attempting to cool the overheating sector, in the face of mounting inflation and a more hawkish tone on monetary policy.  According to the China Daily, quoted by Bloomberg, “Apart from one villa development, no residential project obtained a sales license last week and no new residential buildings were put on the market over the weekend.”  One of the primary reasons for the decline is more stringent government policy making it more difficult to receive a second mortgage, coupled with concerns over future policies that have buyers taking a wait and see approach.  The government relied on the domestic economy, including the real estate sector to strengthen growth during the global financial crisis. 

One potentially significant international implication of a slowdown in the Chinese real estate sector is that the country’s construction industry consumes half of the nation’s steel and 36% of its aluminum.  China’s insatiable demand for natural resources has been a major crutch for the commodities industry as demand from the remainder of the world remains tepid at best.  For example in 2009 China consumed 65% of the world’s iron ore exports.  Therefore, any slowdown in Chinese demand for natural resources could have an adverse impact on the commodities sector, and continue to depress shipping companies still at the mercy of China’s whim.  To get a visual on just how significant Chinese demand for natural resources has been please see this piece from Bloomberg’s Interactive Insight team:

Categories: Asia/China Tags: , ,

Potentially Good News For Smaller Ships

September 17th, 2009 Michael McDonough Comments off

A potential record US harvest could help buoy rates for small to mid-size ship rates.   What was a relatively mild and wet spring and summer has created conditions for what is setting up to be one of the nation’s biggest harvests.   The U.S. Department of Agriculture is projecting a total corn crop of 12.954bn bushels, which would be the second highest on record, and a record soy bean crop of 3.245bn bushels.  Some industry analysts believe these estimates could even be conservative, without a September frost.  The weather conditions that have led to this potential harvest haven’t come without some risks; cool temperatures have pushed back harvest time by up to two to three weeks, which increases the chances of a September frost in the mid-west farm belt. As an aside, changes in the near-term weather forecast for the mid-west could have a large impact on grain prices.  Optimal conditions would be sunny 80 degree days, whereas any frost forecasts before the completion of harvest could place some upward pressure on prices.

Soy Exports

Source: USDA

So what does this have to do with shipping?  While the US experienced optimal crop conditions, other countries, like China, have faced sub-par conditions and have reduced production of soy beans.    Overall the US supplies 45% of the world’s soy bean exports.  In 2008 China imported 37.44mn tons of soy beans, which according to my calculations is roughly 1.3bn bushels, with nearly 99% coming from the US, Brazil, and Argentina.  In fact, in 1Q09 80% of China’s record soy bean imports were from the US.  Early indications on the US Gulf Coast, where most domestic grain is shipped to China have been positive.  Lloyds List, a leading maritime and transport news terminal, quoted one regional broker saying, “The US Gulf has come alive with a bit more inquiry for October, and going forward, a number of sales have been done.” He went on to say, “The Chinese have bought quite a lot of grain out of the US Gulf, and those inquiries have either been with the Chinese or the grain houses.”  This should be especially positive news for panamax rates, which are facing pressure from both decreased iron ore and coal demand.  Capesize rates are unlikely to benefit much, if at all, from this demand as they are not typically involved in grain trade.