The shipping industry still looks to commodities as barometers of its own future, and the global economy, generally. Copper is important in wiring and electronics. But its price on the open market has dropped 20% during 2015, because of concerns about demand in China, which consumes about 40% of global production per year. While mining companies – Glencore, Freeport-McMoran, Asarco and other producers have cut production, Rio Tinto, one of the biggest, has announced that it will do no such thing. In fact, Rio and BHP Billiton have gone in the other direction, increasing production of their principal commodities, including copper, expanding output in their worldwide mining operations.
The head of copper and coal production at Rio Tinto, Jean- Sebastien Jacques, has gone so far as to describe concerns about China as “overblown”. Rio’s large Oyu Tolgoi mine in the Mongolian desert supplies smelters in China with copper concentrate; Rio makes about 20% of its earnings from copper, which is its second most important commodity. BHP is going the same way, on the same assumptions, namely that economic growth in China is starting to level off, and will probably even rise in 2016. Meanwhile, it’s all about maintaining market shares while other producer founders look for consolidation in the industry starting sometime in 2016.
What this means for dry bulk shipping is that, believe it or not, the worst may actually be over. I’m predicting that we may see a gradual but steady improvement in the second quarter of 2016. I wouldn’t wager the family farm on it, but it is at least a 50-50 possibility that BHP and Rio Tinto are correct. To paraphrase Little Orphan Annie the sun may come out tomorrow. Or, at least, copper will rise.