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Monday, July 13, 2009

Baltic Dry, Chinese Hoarding, Commodities and the Fake Recovery

FN: The Baltic Dry (BDI) bounced of the December 08 low of 663.0 and powered into the 38.2% Fibonacci Retracement level. This put the price above the 20, 50 and 200 day EMAs. With the Chinese commodity hoarding almost complete, commodities have started to roll over and head back into the abyss. Shipping rates must almost certainly break down. The BDI is currently sitting on the rising trendline. Watch for a break.

As China Hoards, Concern Grows About Recovery: "For weeks, the ships have been lining up 10 deep at China's booming Qingdao Port, waiting to unload their cargo into storage facilities that cannot keep pace with the thousands of tons of raw materials coming in.

With imports of iron ore, crude oil and other raw materials spiking – and reports of 90 ships at a time waiting their turn to unload – China's continuing growth, fuelled in part by aggressive government spending, has been keeping world commodity prices afloat.

As the global economy continues to falter and Chinese exports plummet, there is growing concern that the stockpiling may soon come to a halt, leading to further, painful drops in commodity prices.

“The level of [iron ore] importing doesn't match the level of steel production so far this year, so there's a considerable amount of stockpiling going on,” said Tim Huxley, chief executive of Hong Kong-based Wah Kwong Maritime Transport Holdings, who along with many others in the shipping industry is grateful for what he called “a shot in the arm” but skeptical that the stockpiling can continue – especially since many of those container ships are sent away empty, without export orders to fill them.

At the same time, China is also stockpiling raw materials used in industrial production rather than exporting them, according to complaints lodged with the World Trade Organization by the U.S. and the European Union on Tuesday. They allege that China is using illegal duties and fees to crimp exports, giving its manufacturers an unfair advantage.

Both the stockpiling of imported commodities and the hoarding that is alleged in the WTO complaint could be inflating global prices for resources.

The risk is that if China's appetite for metals and oil begins to fade as restocking concludes and the rest of the world's demand for goods produced by the Asian economic superpower remains weak, any recovery in commodities could be at risk, undermining the broader recovery. Canada's commodity producers could be in for another bout of serious pain."

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