China Offers Hope for Long Term Dry Bulk Market Growth

China’s economic recovery of late bodes well for the long-term prospects of the dry bulk market. However, there are still many hurdles to be overcome, until analysts can be confident in a full-blown freight rate resurgence. In its latest weekly report, shipbroker Allied Shipbroking said that “the critical role China plays on the global dry bulk shipping market has been an undisputed fact for many years now, as it’s not only the country with the 2nd highest GDP figure in the world, but also the top importer of iron ore and soyabeans. The importance of China has been highlighted further this year as it has played a massive role in the rebound noted in the dry bulk freight market after the catastrophic FebMarch period. As such, there seems to be no better time to further examine China’s latest developments and see if the support it has offered can still hold”.

According to Mr. Yiannis Vamvakas, Research Analyst with Allied, “though 2020 will certainly be a disappointing year, China is still showing a glimpse of optimism in an overall gloomy market environment. Estimates still hold for a fair economic growth to be seen this year (albeit at only 2%). The economies resilience has mainly been due to increased government spending and a fair cap on China’s COVID19 spread. Meanwhile, the latest forecast from the World Bank states that it expects economic growth to bounce back to 7.9% in 2021, a fairly positive sign. With regards to industrial production, which is highly correlated to iron ore imports and overall exports, the latest data showed China’s manufacturing activity further expanded in September. The PMI rose to 51.5 last month, compared to the 51.0 noted in August. Here, it is worth noting that a PMI above 50 indicates expansion”.

“Given the increased production in the country and the government’s stimulus packages, iron ore imports have posted a strong rebound of late, with 96.1m tonnes being imported in September. At the same time the average monthly imports for the year have reached 94.23m tonnes (fairly higher compared to the 89m in 2019). Meanwhile, steel production has also returned to more robust numbers, with the monthly output in August reaching 94.85m tonnes. However, it seems that an important part of the production is saved as stockpiles, with the latest data showing steel stocks rising to 7.94m tonnes (this was 5.81m in 2019 and 4.15m in 2018)”, Vamvakas added.

Allied’s analyst continued: “this begs the question as to how quickly this excess steel produced can be absorbed by either local demand or exports. This uncertainty overshadows the whole economic recovery effort, as there is an imbalance between the production rebound and demand recovery, (with the latter being much less impressive so far as retail sales rose by a mere 0.5% in August). Another key element that should not be overlooked is the ongoing trade tensions between with the US. Although this had been in effect put on hold due to the COVID-19 outbreak, we could see tensions rise again between the two as we get closer to the US presidential elections next month. The US incumbent president, Donald Trump, has criticized China many times in the past regarding the pandemic situation as well as on the trade policies undertaken by Beijing. However, despite this, trade is expected to rise at least in terms of soyabeans, with Phase 1 of the signed agreement stating that imports from the US should reach US$ 36.3B in 2020 and US$ 43.3B in 2021. In line with this, we have seen a y-o-y increase of 1% in the total imports of soyabeans by China. However, it should be noted that the latest official data is not only encompassed by encouraging news, as home and car sales posted a decline, as did the stock market, while business confidence metrics were also discouraging. Finally, the uncertainty over developments in the ongoing pandemic and the impact of the US elections leaves little room for any firm momentum to build up in the market, leaving us all with an overall bittersweet after taste to deal with”, Vamvakas concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide