Jan, 2011

Growth in the US economy improves

US economic growth accelerated in the last three months of 2010 to an annualised rate of 3.2%, corresponding to a 0.78% quarterly increase.

This compares with an annual GDP rate of 2.6% from the Commerce Department in the previous quarter.

A rise in consumer spending contributed to the growth, as did falling imports.

The Labor Department said that wages and benefits rose 2% in 2010, which is faster than 2009, but still the second slowest rate since records began.

The Labor Department has been collecting the figures for 28 years.

The fourth-quarter GDP figure is a first estimate, and could be revised either up or down in the coming months.

The US economy grew by 2.9% in the whole of 2010, which is the strongest year of growth since 2005.

The 4.4% rise in consumer spending had a particularly strong effect because such spending accounts for more than two thirds of US economic activity.

“Unfortunately we still need to see much stronger growth to begin to really make a dent in the unemployment rate,” said by specialist in Pennsylvania.

“Right now we are just barely creating enough jobs to stabilise the unemployment rate.”

The news also failed to lift Wall Street, which suffered one of its biggest one-day falls for weeks on fears about the escalating conflict in Egypt. The Dow Jones index fell 166 points, or 1.4%, to 11,823.

Source of funding

Home building made an unexpected contribution to the figures, growing 3.4%.

Government spending contracted, with much of the fall coming from state and local government.

There was also an indication that the next quarter could be strong because while consumer spending showed good growth, there was no corresponding rise in inventories to replace the sold products.

The combination of rising consumer spending but little growth in wages also poses questions.

“Traders have to digest the larger-than-expected personal consumption number… and to determine the source of funding for that jump,” said Jim Vogel, at FTN Financial in Tennessee.

The GDP report also features an inflation figure – the personal consumption expenditures (PCE) index – which rose 1.8% in the quarter, reflecting the increases in food and fuel prices.

But the core PCE index, which excludes food and energy, rose at a record low level of 0.4%.

European utilities hedge shipping rates against rising coal prices

Large European power utilities are buying long-term freight derivatives contracts aiming to take advantage of low shipping rates and reduce their exposure to high coal prices, trade sources said.

The benchmark Baltic dry freight index, which tracks rates to ship key commodities such as coal and ore, is now as low as it last was at the beginning of 2009, at the depth of a global economic downturn.

At the same time some energy products, such as oil and coal, are at their highest levels since before the credit crunch.

“When you have the freight at these (low) levels and you have commodities at extremely high levels it makes perfect sense to hedge both of them and lock in profit,”

Sources said that some major European utilities had taken short positions in the freight market at the end of 2010 in anticipation of dropping rates on the back of a vessel oversupply, while also to hedge against increasing coal prices, but were now going long on the far end of the freight curve.

While most European utilities do not enter the freight market on a large scale, those with global cross-commodity trading activities take a more active role in this market, and sources said their involvement in the freight market had been on the up in recent months.

“If you are able to hedge your freight at these levels, it will be interesting for these companies,”


  Sources in London’s financial market said some of those traders were taking long positions on freight contracts dated 2013 and beyond, in the hope of a rebound of freight rates, and to compensate for anticipated higher coal costs.

“We have seen some increasing interest from European coal power players in the freight market lately,” one London-based financial source said. “Many believe prices there should rise in the long-term.”

Another trade source reported buying of freight derivatives contracts into 2013 and 2014, including on panamaxes, which are often used to transport coal, and the larger capesizes which typically haul iron ore and coal cargoes.

The most liquid Q1 capesize contract traded at $16,500 a day on Thursday, down from $21,700 a day on Dec. 31. The average for the Q1 capesize contract in 2010 was around $34,000 a day.

Freight rates are expected to remain pressured this year as fleet supply gathers pace despite firmer demand prospects. It normally takes three years for a ship to be delivered, with many bulkers ordered before economic turmoil in 2008.

“Too many vessels were ordered for 2010, and options for delivery delay until 2011 have been used, so I would not expect a large increase in freight rates before the end of this year,” one shipper told.

Cargo boom hands Hong Kong number one spot

ASIA-Pacific airlines saw cargo demand grow by 24.2 per cent in 2010, helping to position Hong Kong International as the world’s largest cargo airport.

The airport’s cargo alone grew 23.4 per cent to 4.1 million metric tons, while Memphis International Airport, holder of the largest cargo airport title for the last 18 years, grew only 5.9 per cent to 3.9 million metric tons.

Cathay Pacific Airways became the world’s biggest international air cargo carrier last year thanks in part to escalating exports from China’s Pearl River Delta. The airline’s cargo traffic rose 23 per cent to 10.2 million ton-kilometres, beating Korean Air Lines, previously the largest.

Cathay expects to boost cargo capacity about eight per cent this year. The carrier is also forming a cargo venture with affiliate Air China to access hubs in Shanghai and Beijing, while also building its own freight terminal at Hong Kong airport.

China’s economy expanded 10.3 per cent in 2010, the fastest in three years. The growth of production in the Pearl River Delta, which neighbours Hong Kong, has lured investment from international air cargo carriers, including FedEx and United Parcel Service, which have both opened hubs in the region.

Iraq to buy nine ships for $100 million

Iraq has allocated $100 for the purchase of nine ships, said a source at the state-run Maritime Transport Company. The source said the ships will be mainly used for the import of foodstuffs to the country.

The ships will have a capacity of 15,000 to 20,000 tons each, he added.

Among them there will be a passenger ship, he said.

He said the company will hold a news conference to which international ship-building firms will be invited. The contracts and terms for the construction and purchase will be announced during the conference.

Iraq is building its cargo ship fleet from scratch. The source said it was time the country had its maritime fleet for the import and transport of goods.