On June 23, the CEO of the world's largest dry bulk cargo shipping company warned that he actually sees a decline in shipping volumes. That's very bad news for the bullish global trade argument and a smack to the head of the Green Shoots Brigade. Dry bulk cargo is how the world ships coal, steel, and other raw materials. The Baltic Dry Index -- the daily average of prices paid to ship these materials -- has long been a key leading indicator of industrial production. And after a spectacular triple digit run, the Baltic Dry Index rolled over this week and headed steeply downwards.
Maersk's CEO said cargo volumes would likely fall by as much as 10% in 2009 and won't rebound in 2010. This statement could market a top for the Baltic Dry Index, which has run op over 400% after hitting multi-year lows in December 2009. But in June alone the BDI has dropped by roughly 20% and continues falling.
The upshot? This news takes a club to the head of the global growth argument. If the world is truly in the midst of an economic recovery, then industrial demand for raw materials should be growing, not shrinking. The Maersk announcement further seems to support speculation that China's massive purchasing of commodities such as iron ore and coal was more for stockpile purposes than to fuel an actual industrial growth scenario. Like any prudent speculator, China was buying a non-perishable good at low prices rather than feeding its factories.
Meanwhile, U.S. firms, awash in debt, are hardly likely to step up production significantly in the coming year. Automakers continue to cut hours and weak numbers from new home sales will probably put a crimp in any plans to ramp up construction. Homebuilding and autos are two key consumers of the types of materials shipped in bulk. Add it all up and the bulk appears to stop here -- with the global growth trailing along behind it.
Alex Salkever is the Director of Research at Piqqem.com, a stock prediction community built on the Wisdom of Crowds.
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