There are a lot of ships sailing around China these days.
As I've discussed several times over the past weeks, Chinese shipping indices have gone ballistic.
The China Containerized Freight Index measures shipping costs for exporting goods from ten major Chinese ports to 11 regions worldwide. And those costs have been rising lately. Up 17% since January 15.
The trend shows no signs of reversing. Last week the index jumped 3.9%. Led by a 7.1% leap in shipping traffic from China to the U.S. West Coast, and an 8.6% jump in shipments to Korea.
The jump in the index means more goods are being sailed from China. Raising demand for shipping, and increasing charter prices.
This is a Chinese-only phenomenon. Shipping rates throughout the rest of the world (as measured by the Baltic Dry Index) fell sharply at the end of January and were flat throughout February.
These data points strongly suggest a wave of exports coming out of China. The indexes don't tell us what goods are being shipped. But there's anecdotal evidence that metals from China are making their way to other countries. Unusual shipments of aluminum, probably from Shanghai, showed up in Japan recently. And January saw a marked increase in Chinese applications for steel imports into the European Union.
Observers in the metals industry have long-feared this "bust that would launch a thousand ships".
China built huge stockpiles of copper, zinc, coal and iron ore over the last year. The fear is much of this inventory is held on speculation of rising prices. If prices fail to rise, all of this metal could re-appear on the world market as worried investors sell. Representing a big drag on global metals prices.
Recent action in the shipping indexes may be confirming those fears. If you're a commodities investor, this is one you need to watch.
By. Dave Forest of Notela Resources