How China's GDP Growth Target Is a Double-Edged Sword for DryShips Inc. & Diana Shipping Inc.

China announced it is shooting for 7.5% GDP for 2014. At the sound of that target, DryShips (NASDAQ: DRYS  ) and Diana Shipping (NYSE: DSX  ) are likely celebrating. China is the primary country these days responsible for rising market rates for dry shipping, but something in the announcement may warrant a bit of caution.

The positive side
According to Nikos Roussanoglou of Hellenic Shipping News Worldwide, this is positive news for dry shipping. Though the number is slightly down from the 7.7% GDP growth of 2013, it's still an aggressive economic growth target that, if achieved, would have a large positIve impact.

China growth tends to result in much higher demand for dry shipping volumes. For example, as Roussanoglou points out, China imported approximately 1 billion tons of cargo in 2008, and that figure more than doubled to 2.1 billion in just five years for 2013. The number one commodity in demand for China is iron ore for its production of steel. BIMCO's chief shipping analyst Peter Sand puts it well when he says, "The sheer size of the world's second-largest economy now gives so much impetus to our industry that we have become addicted to China."

Sand emphasizes that support from China is needed to maintain a strong sustainable market. He believes the industry will continue to see balance between supply and demand.

The cautious side
Meanwhile, hedge fund manager and shipping industry expert Jay Goodgal has a different perspective. He believes that the news out of China means supply of new ships in the form of the orderbook is going to continue to escalate. This higher supply will, in turn, depress rates. He points out that decreased supply has been a vital part of the forecast models from shipowners, analysts, and investors, and he believes they have it all wrong.

Within the 7.5% GDP target report, Goodgal points out that China's No. 1 priority is employment. The goal is 11 million new jobs in China, with sights on more. One way to achieve this, according to Goodgal, is to support the shipbuilding industry. New ship orders, he reasons, will increase employment. Shipbuilding supports a vast number of jobs, and these are exactly the types of jobs the Chinese government is trying to create. As a bonus, Goodgal implies, the Chinese government is well aware that if it supports the shipbuilding industry, it will lead to greater global supply and cheaper transportation costs for China.

Goodgal asks, "If this were a poker game, who would have the label of 'sucker' on their forehead?"

Foolish final thoughts
What Goodgal warns sounds like it makes sense, but it may take some time before policies are implemented that increase ship builds that lead to an increase in the number of ships actually delivered. Any new orders in 2014 won't be delivered this year, so it seems like his concern is more for the long term.

Still, the market is a forward-looking beast, so keep a close eye on news of continued new orders, or government policy out of China designed to stimulate new orders. By being prepared for this news in advance of the street, you can avoid possibly being a "sucker," as Goodgal calls it. At the same time, you can potentially enjoy the upside gains in the meantime if Roussanoglou and Sand are correct about a stronger market in 2014

Financial advisors hate this man
Believe it or not, even some of the wealthiest individuals in America fall prey to these elaborate decades-old schemes. These five simple questions will reveal whether your financial advisor is using them, as well... 

Can you answer "YES" to these 5 questions?


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2891648, ~/Articles/ArticleHandler.aspx, 8/28/2015 8:42:00 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Nickey Friedman

Nickey is a select freelancer for the Fool. She writes about food & beverage, dry bulk shipping, and whatever else floats her boat. After selling four successful restaurants, she turned in her knives for a pen and now puts her passion for food, hospitality, and transportation in writing. You can send email to her at

Today's Market

updated Moments ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
BALT $0.00 Down +0.00 +0.00%
Baltic Trading CAPS Rating: ***
DRYS $0.44 Down -0.01 -2.22%
DryShips, Inc. CAPS Rating: ***
DSX $6.73 Up +0.19 +2.91%
Diana Shipping, In… CAPS Rating: ****
NMM $8.35 Up +0.87 +11.63%
Navios Maritime Pa… CAPS Rating: *****
SBLK $2.33 Up +0.09 +4.02%
Star Bulk Carriers CAPS Rating: **