Moller-Maersk sees profit drop after slump in commodities

Another causality of the commodities slump is shipping giant Moller-Maersk who cut profit forecasts after a dismal 6 months which saw profits fall short of expectations by $600 million. The biggest concern currently is the route between Europe and China which makes up a big proportion of the company's profit.

 I think the downturn has hurt Moller-Maersk in two ways, you have nations who are shipping raw commodities off to China for production then once they are manufactured the Chinese ship the finished products to the world. Although that is still the case, the extent at which the Chinese are producing is significantly less than it was at the peak of the boom.

We've seen the situation exacerbate presently due to growing concerns escalating faster than what we've seen so far. I don't think shipping is a business I envisage going out of business very soon, considering the mass transportation of goods between countries and the ever growing relationship between them means there a consistent need.

China is far from full development however what the current situation does highlight is the good and the bad that comes with the age of globalisation. China may have saved us from a worse off scenario than what we thought but now it's bite the world back by hampering world economic growth as many nations rely on China to produce growth rates the world is expecting.

Moller-Maersk downgrades profit outlook for 2015, its CEO explains why: https://t.co/HDaEk7YZBP pic.twitter.com/3L540bypqF

— CNBC World (@CNBCWorld) October 23, 2015

You know the saying "What goes up has to come down", well the number of rigs drilling for oil in the US is no exception as we've seen a huge surge and subsequent fall in rigs operating as producers respond to the drastic fall in oil prices.

We know this has been a tactic of OPEC to flood the market with excess quantity but you really wonder who's responding in the best possible way although we know that price wars aren't pretty. I think weighing up I'd say US producers are curbing the losses much better than there Opec counterparts.

This probably stems from the fact that US producers sit with more debt on their balance sheet with deep production cuts like we are seeing indicative of a more longer term presence. If that were to happen it doesn't bode well Saudi Arabia the dominating force within Opec who has been facing a raft of pleas from other member nations that have generally suffered economically as opposed to sector specific seen in the US.  

BAKER HUGHES US oil rig count fell just -1 to 594 last week, 8th consecutive decline but smallest so far: pic.twitter.com/2h4BjZJUqK

— John Kemp (@JKempEnergy) October 26, 2015

Given the drop in oil prices it would be expected to see a modest bounce in prices in the medium term, I believe that is now underway but if China continues to contract , prices may remain under pressure for a few years to come. We must also take note of reports over the weekend that Chinese authorities are in the process of coming up with a 5 year plan to stimulate growth.

 After a sixth cut in interest rates this year, that would be very welcomed as an economy needs both sides, namely fiscal and monetary, working together in unison, something the US can't brag about currently. However for these measure to fully realise themselves it will take a number of months as drag time can be expected.