Dry bulk shippers in second stage recovery (Part 7 of 9)
The importance of Europeâ€™s factory orders to China and dry bulks
Factory orders are an indicator that reflect demand, which leads production activity and demand for raw material such as iron ore and coal. As China has historically relied on exports (and still does) and Europe is its largest trading partner, exchanging primarily industrial goods or manufactured products, economic activity in Europe can influence dry bulk demand, shipping rates, and earnings.
Germany factory orders growth flips to the upside
As the largest economy in Europe, Germanyâ€™s factory order is a good representation of the regionâ€™s industrial activity. The latest data shows factory orders rose 4.3% year-over-year in June 2013â€”the first positive increase since 2011. Analysts often use the year-over-year data to adjust for seasonality and view long-term trends.
While the recovery since mid-2012 has been weak and uneven, growth is now in positive territory. Factors that had contributed to the unsteady recovery included a higher euro (which made European exports much more expensive) and continued pressure from austerity measures that weakened aggregate demand. Analysts have expressed concern regarding the regionâ€™s outlook at the start of 2013, when recovery was still paddling along, while the ECB (European Central Bank) and IMF (International Monetary Fund) maintained their growth outlook.
How Germanyâ€™s factory order affects dry bulk shippers
The latest data is another encouraging sign that growth is returning to Europe and that expansion could start to gain momentum. Indeed, mired in recession, the European Union had recently eased austerity measures for some countries to give them more time to hit their debt reduction targets. Although Europeâ€™s demand for raw materials is secondary to China and other emerging markets, Europeâ€™s activity has historically correlated heavily with other countries. So Germanyâ€™s June factory order figure bodes positive for dry bulk shippers such as DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB), Navios Maritime Partners LP (NMM), and Navios Maritime Holdings Inc. (NM).
Browse this series on Market Realist:
- Part 1 - Why you should look beyond the U.S. market for dry bulk shippers
- Part 2 - Why ship orders fell but remain fundamentally positive
- Part 3 - Construction activity signals dry bulk shipping recovery in 2014