These stories appeared over the weekend providing further grist to the mills of shipping Cassandras. One of the interesting indirect links to these cancellations is the announcement, also over the weekend, of the giant Chinese fiscal package intended to unlock its domestic demand.

Shipping and China are a couple fused at the hip. The explosion of the Baltic Dry Index until this summer dates, essentially, from the massive increase in Chinese steel production in 2006 (and requisite iron ore imports). From that point the country became a consistent net exporter of steel (and churned out 35% of global supply). Obviously not the only factor that drove freight rates but a very significant one.

Here matters become trickier. Steel employs several million in China on the back of large energy subsidies and has been artificially nurtured to its current size. Large scale job losses are an unacceptable socio-political outcome. Conversely, for a global industry the bane of which has usually been overproduction that is not optimal.

Bit of a circle of little virtue. China has arguably kept workers (and the world's shippers) happy via subsidised over investment in the steel industry. It previously blunted World Trade Organisation censure over low grade exports by moving massively into high grade steel industries such as shipyard construction and vessel production. But maintaining employment via subsidy and loophole becomes an albatross when global demand tapers off.

And now the Chinese authorities are planning to perform a related crowding-out trick, except at over 20 times the scale (with the proviso that they have not thus far revealed how they arrived at the apparent $586bn), on the domestic economy. From the WSJ article above:

"The plan includes spending in housing, infrastructure, agriculture, health care and social welfare, and features a tax deduction for capital spending by companies."
Shippers, previously amongst the most liberalised market industries, will be hoping those first two items feature prominently in the central planners' intentions if they are to avoid a lengthy industry restructure.

Meanwhile, free markets - led with some optimism by miners and construction equipment - rally. Why wait for the detail?

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