August 3, 2015
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By: Charles Gave of GaveKal Research – Reprinted with Permission

I am afraid I am rapidly turning into Gavekal’s resident bear—asleep half the time, grumpy the rest. In particular, I am amazed how some people have suddenly discovered that world trade is going nowhere, and that they are so bamboozled by this strange pattern. Where exactly have they been for the last 15 years?

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July 19, 2015
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The tanker market concluded the first half of 2015 successfully. Across all size ranges, spanning both crude and products the tanker market experienced strong earnings.

Oil demand is strong. Globally, it is likely to grow at or above 1.5% this year, resulting from growth in the OECD, The U.S. is particularly experiencing strong gasoline demand as we have seen refinery runs are close to record levels, 

OPEC output is surging, In June, OPEC produced 31.7 million barrels per day (“b/d”) (Source: International Energy Agency (“IEA”)), This was led by Iraqi production, following by increased production in Saudi Arabia and the UAE. OPEC production was as the highest level in the past three years and well above the nominal quota of 30 million b/d. In its June report, the IEA also noted the market was massively oversupplied and stocks have been building at an “astonishing” 3.3 million  b/d in the second quarter of 2015.

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July 18, 2015
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Ivan Glasenberg, leads the global mining and commodities trading firm Glencore. If his recent comments are acted upon by Rio Tinto, BHP, Fortesque and other miners dry bulk shipowners, and in particular, Capesize owners should consider another profession (principally, spot focused fleets). Glasenberg stated that Sam Walsh, the CEO of Rio Tinto, and his fellow global mining executives “screwed up” by flooding the world with minerals. Glasenberg’s message to the mining industry is simple: “You’re in a hole; stop digging. The problem is, mining execitives think they’re in the business of digging. “There’s too much focus on big holes in the ground and not enough focus on return for capital,” says Paul Gait, a mining analyst at Sanford C. Bernstein & Co.” (Source: www.minweb.com), As rates have moved up recently, the last thing Capesize owners need is reminder their market is a residual function and incredibly fragile.

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July 12, 2015
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Consultant Lowers Corn, Soybean Yield and Acreage

After touring Indiana and western Ohio, Pro Farmer Crop Consultant Dr. Michael Cordonnier concluded, “Farmers in Indiana are in big, big trouble and farmers in western Ohio are not much better off.” He says corn in these two states is worse than he expected and soybeans are much worse than anticipated. Yield potential for corn and beans has been “severely compromised” in both states.

Therefore, Dr. Cordonnier lopped another 2 bu. off his corn yield forecast and 1.5 bu. off his soybean yield peg. He now pegs the corn yield at 163 bu. per acre and the soybean yield at 43.5 bu. per acre. In addition to his yield reductions, Dr. Cordonnier also cut 300,000 acres off USDA’s June harvested corn acreage figure and took 1.5 million acres off its soybean harvested acreage estimate. The yield and acreage reductions lowered his corn production estimate to 13.14 billion bu. and his soybean peg to 3.58 billion bushels. He maintains a lower (potentially much lower) bias to both crops.

Other key points of the report include: –

“Excessive moisture in the central, eastern, and southern Corn Belt is delaying the completion of the full-season soybean planting and the double crop soybean planting. Furthermore, high temperatures and dry weather in the southeastern U.S. (South Carolina, North Carolina, and Georgia) could impact the corn first and then the soybeans in the region.”

.Note: See – Pro Farmer: ProFarmer.com – News

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July 9, 2015
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China has seen the value of its agricultural commodity imports increase as well as the amount of the metric tons it imports climb steadily (See Chart:Waistlines, Not Skylines). The increase of its agricultural imports has occurred as agricultural prices fell over the past two years. At some point in time, if and, more likely, when agricultural prices globally surge, the impact on China will be significant. China is not self-sufficient in agricultural commodities any more. This is of strategic concern to Chinese policy makers. China has approximately 20% of the world’s population, but has only 7% of the global arable land. Furthermore, its cropland erosion also results in soil loss of 40 tons per hectare each year, 4 times the erosion estimated in the U.S. and Europe. With a society increasingly demanding higher protein and calorie counts, we can expect that in the future, agricultural imports will grow and be even more of an issue to policy makers.

For the shipping markets, the increase in agricultural movements is a real positive. However, given the supply of ships being delivered over the course of the next 2 1/2 years and a significant percentage of those ships being Capesize vessels, dedicated to industrial commodities (coal & iron ore), the prospect that dry bulk shipping will provide an attractive return for particularly larger vessels is concerning.  

Short-Term Phenomenon: Over the course of the past 4 weeks, the short-term surge in rates from incredibly depressed levels has buoyed shipowners. This was achieved because Australian iron ore exports hit a record run-rate (just as Vale had increased cargo requirements). For the week ending June 28th,, total deadweight (“dwt.”) ton ship throughput was 18.0 million dwt., up from 16.7 million dwt., the prior week. The average weekly run-rate for year-to-date June 2015 has been 15.3 million dwt. v. 14.8 million dwt. during the same period in 2014. Both Rio Tinto and Fortesque (“FMG”) have seen volume increases, with FMG registering a record-high throughput. It is projected that Rio Tinto has, contrary to some expectations, managed to reach its target run-rate of 360 mt per annum by mid-year 2015; this is likely pressure iron ore pricing. Lower expected iron ore prices will not help the immediacy of the demand to increase shipping rates from current levels, particularly as newbuildings are delivered.

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