Harpex index Archives - the patient investor

January 22, 2020January 22, 2020

Commodities & Global Growth

Commodity prices warn that the global economy is still in a slump.

The Dow Jones – UBS Commodity Index remains at one-third of its 2007 peak, with no sign of recovery.

DJ-UBS Commodity Index

The fall in crude prices hasn’t been as severe, but Brent Crude is again weakening and looks set for another test of $50/barrel.

Brent Crude

Shipping rates for dry bulk goods, such as iron ore and coal, have fallen, with the Baltic Dry Index close to long-term support at 500.

Baltic Dry Index

Supply interruptions to iron ore production in Brazil have cushioned Australian producers from a sharp down-turn in iron ore prices. But coal exporters are feeling the pinch.

RBA Chart Pack: Bulk Commodity Prices

Recovery of Brazilian production over the next two years is expected to add downward pressure to iron ore prices.

The only positive appears to be container shipping rates. The Harpex Index rose steeply in 2019, reflecting increased demand for container shipping of finished goods.

Harpex Index

Somewhat surprising, since this coincided with US-China trade tensions and tariff increases. The answer may lie with importers on both sides of the Pacific attempting to front-run the imposition of tariffs and build inventories in case of supply interruptions and to allow time to adapt their supply chain. Expect the index to retreat in the early part of 2020.

It looks like low global growth will continue.

August 12, 2015

Desperate times, desperate acts

A sharp fall in global trade is the most likely reason for China’s decision to devalue the Yuan — not aspirations for CNY to be considered a reserve currency.

There are clear signs that global trade is contracting. Shipbrokers Harper Petersen’s Harpex weekly index of charter rates for container vessels fell 9 percent in July and August is following a similar path. Reduced demand for container shipping reflects a sharp fall-off in international trade in manufactured goods.

Harpex Index

Tyler Durden from zerohedge.com highlighted China’s falling exports last week (August 8):

Goldman breaks down the geographic slowdown:

Exports to the US contracted 1.3% yoy, down from the +12.0% yoy in June.

Exports to Japan fell 13.0% yoy in July, vs -6.0%yoy in June

Exports to the Euro area went down 12.3% yoy, vs -3.4% yoy in June.

Exports to ASEAN grew 1.4% yoy, vs +8.4% yoy in June

Exports to Hong Kong declined 14.9% yoy, vs -0.5% yoy in June.

Slower sequential export growth likely contributed to the slowdown in industrial production growth in July. Weaker export growth is likely putting more downward pressure on the currency, though whether the government will allow some modest depreciation to happen remains to be seen.

Durden presciently concludes:

As global trade continues to disintegrate, and as a desperate China finally joins the global currency war, it will have no choice but to devalue next.

Michael Leibowitz at 720Global.com also warns of the destabilizing effect carry trades may have on any adjustment:

The “one-off” adjustment has now become two…. this devaluation is likely not a one-time event but rather the beginning of an ongoing and persistent depreciation of the CNY versus the USD. The embedded USD short position within the [estimated $2Tn to $3Tn] carry trades will begin to result in losses and margin calls as the USD appreciates versus the CNY, thus forcing investors to liquidate some of their positions. These trades, which took years to amass, could unwind abruptly and exert an influence of historic magnitude on markets and economies.

April 9, 2015

Upsurge in global trade?

While commodity prices are tanking, with iron ore now trading below $50 per tonne, there are signs that international shipping of manufactured goods is on the increase. Shipbrokers Harper Petersen publish the Harpex, a weekly index of charter rates for container vessels. The recent up-turn reflects increased demand for container shipping — an important barometer of international trade.

Harpex Index