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"Inscrutable China." A Western cliche? Undoubtedly. But for the dry-bulk shipping industry, the phrase contains more than a little truth.

That's because bulkers have come to depend on the People's Republic, the most prolific consumer of iron ore on the planet, for the health of their businesses, if not their very survival. And China of late has been anything but transparent.

When the country began stockpiling iron ore and other raw materials earlier this year, seemingly to take advantage of plummeting commodities prices, shipping rates spiked on the demand instantly created by all that buying coming out of China.

The trouble, however, was obvious: whither this Chinese stockpiling jones? Not many people truly believed that China's economic stimulus package had spurred (or will spur) enough manufacturing activity at its thousands of mills and factories to consume all that raw material.

Since the beginning of the year, China has imported some 354 million tons of iron ore. By way of comparison, the country brought in 440 million tons

in all of 2008

-- a year that was, for the most part, still unmarked by the full-blown effects of the Great Recession.

That rather ghostly spike in importation has to some degree bolstered the dry bulk trade, with cash flows increasing as rates have escalated sharply from their historic lows, reached in the first month or so of the year.

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(The absolute nadir came in January, when spot rates at one point fell to $1,000 a day for a Capesize ship that requires $10,000 every 24 hours just to pay the crew. And then, in late spring, rates on the spot market spiked as high as $90,000 a day. Activity had grown so intense that ships were queued up outside ports by the dozens, waiting in line -- some 20% of the world's dry bulk fleet off the market, according to some estimates, a supply squeeze that drove rates even higher.)

As a result,


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Excel Maritime

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all managed to meet or surpass Wall Street expectations, if narrowly. And, undoubtedly, the rest of the publicly traded bulk shipping sector will report results along similar lines.

Looking ahead to the second half, however, attempts to forecast the near-term direction of the dry-bulk business has become something of a parlor game for industry insiders, shareholders and observers.

The game has broken along traditional lines: optimists vs. pessimists, the Pollyannas up against the Cassandras, with everyone trying to divine the motives and intentions of the Chinese -- a difficult task.

"The outlook is ... somewhat vague," said Natasha Boyden, a dry-bulk stock analyst at Cantor Fitzgerald.

"The second half, it's a toss up," said one shipping broker -- a job, of course, that depends on following the vicissitudes of the bulk trade so that the broker can accurately value the ships being bought and sold.

Chinese officials have publicly declared that they want to slow down their epic raw-materials grab, but so far they have not done so. Recently, the Chinese iron ore stockpile reached a 10-month high.

Still, the latest forecasts put China's total 2009 ore intake at about 550 million tons. The simple math (subtracting those 340 million tons) would suggest that a slowdown is likely on the horizon.

And that, of course, would mean a retraction in rates. Even on Thursday, the going price on the spot market for a day's worth of Capesize hauling tumbled to $48,000, continuing a downward trend that has lasted more than two months, and dry bulk stocks fell sharply in response.

The question then becomes whether the rest of the world's economy can recover in earnest. And so, day to day, dry bulk stocks fluctuate on each new piece of macro-economic data -- out of the U.S., out of Europe, out of Japan -- that hints at either the coming rebound or further decay and the dreaded double-dip.

One sign of where things might be headed can be found in the degree to which shipping companies have recently inked long-term charter contracts versus the percentage of their fleets that they've given over to the spot market, which moves based on at-the-moment demand.

By making these charter arrangements, freight haulers can protect themselves from a drop in demand and a resulting cratering of the spot market. An increase in the number of boats on charter is thus seen as a possible harbinger of a coming fall in demand, since such moves would seem to indicate that shipping chieftains, with their lighthouse-level view of the market, are bearish about future demand.

One need look no further than DryShips, whose chief executive, George Economou, is widely regarded -- whatever one might say about his other qualities -- as a kind of savant at timing the dry-bulk market. In its second-quarter earnings report, DryShips announced that it had locked 87% of its fleet into long-term charter contracts for the rest of 2009, a huge percentage, especially for a magnate like Economou, who's also known as a gambler. If he's going conservative, what could that mean for his outlook on the second half?

But there is a bright-side counterargument, and one need look no further than dry bulk's customers -- the mining companies and other raw materials producers who fill the boats. They have a desire to lock in long-term charters as well: if, for instance, they think shipping rates will be going up.

The world's biggest ore miners -

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( RTP),

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-- have been having their own issues with China. Each year, the mining companies and Asia's steelmakers negotiate ore prices for the following cycle.

Talks haven't been going so well. Though deals have been struck with Japan and South Korea's foundries, China has been holding out for a steeper price cut. (The Chinese have even incarcerated several Rio Tinto executives traveling between their borders.) Still, the producers would also seem to have a view of what their bargaining partners are up to -- and judging from their deals with bulk haulers, they may believe demand will continue to strengthen.

If one is a bright-sider, one could do worse than to place one's bets with those shippers who have placed a smaller percentage of their fleets into the hands of charterers. Of the companies that have reported, Genco Shipping has one of the more attractive mixes between charter and spot-market, according to analyst Natasha Boyden, with 67% of its fleet under contract for 2009. "They're in a good position," she said.

The dry-bulk business does have concerns beyond China, of course. And nothing looms as large as the sheer number of vessels sitting in various stages of completion in shipyards around the world, ordered by shipping companies -- foolishly, in retrospect -- at the height of the boom.

By some estimates, vessels totaling some 51 million deadweight tons will come into service in 2009. Some believe that there are more Capesize ships now on order than there are actually in the water today.

To put this into perspective, there are about 550 Capesize vessels in existence. At a standard 175,000 deadweight tons per Capesize, that means there's about 100 million tons in service now. Newbuildings, as they're called, would therefore increase the world dry bulk fleet by a third in the second half of 2009 alone.

When and if this supply comes on-line, it will likely tank rates yet again, especially if the global economy remains fragile -- and everyone seems to be hoping that dry bulkers will suck it up and scrap at least some portion of their orders. (Such decisions don't come easily: to terminate a deal with a shipyard usually means forfeiting a deposit of about $20 million.)

Some analysts, including Boyden, believe all of those 51 million tons will be built and delivered in 2009 -- a Cassandra's take.

How much this new supply will impact rates is anyone's guess, especially when combined with the aforementioned inscrutability of China's real demand for raw materials. All of which is to say that the dry bulk outlook for the second half of 2009 remains an enigma inside a riddle inside a puzzle.

Or, as Boyden put it, quoting former Defense Secretary Donald Rumsfeld, "It's a known unknown."

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