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Dry Bulk Market: Chinese Iron Imports a Bright Sign

Despite the trade wars and the contraction of the Chinese economy’s growth rate, dry bulk owners could rejoice in the knowledge that the dry bulk market remains largely unaffected. In a recent monthly report, shipbroker Banchero Costa noted that “China’s iron ore imports increased again in August 2019, to the highest level in 19 months, boosted by rebounding supplies from the major miners and mills replenishing inventories. In August, China imported 94.9 mln tonnes of the steelmaking material, according to Customs figures, up 4.2% monthon-month from 91.0 mln tonnes in July 2019, and up 6.3% year-on-year compared to 89.2 mln tonnes in August 2018”.

“This was the second month in a row that recorded positive year-on-year growth, following the disappointing volumes in May (-11.0% y-o-y) and June (-9.5% y-o-y). In the first 8 months of 2019, total imports of iron ore reached 684.9 mln tonnes, still down 3.5% year-on-year from the 710 mln tonnes imported in the same period last year. Low import volumes in the first half of the year were primarily due to shortages in supply, which resulted in a 40 mln tonnes decline in stockpiles at Chinese ports between March and July of this year. However, it now seems that the supply side of the equation is slowly getting back to normal. Out of the total 684.9 mln tonnes of iron ore delivered to China in January to August 2019, 127.8 mln tonnes or 19.2% came from Brazil. This was down 5.7% from the 135.5 mln tonnes seen in the same period last year”, said the shipbroker.

According to Banchero Costa, “the year started well for Brazil. In the first quarter of 2019, as much as 58.2 mln tonnes of ore arrived to China from the South American country, up from 50.3 mln tonnes in the same period last year. However, things went all wrong in the second quarter, following the tragic accident at the Vale-controlled mine. In 2Q 2019 only 32.4 mln tonnes of ore arrived to China from Brazil, down from 48.8 mln tonnes in 2Q 2018. The low point was June, with just 7.69 mln tonnes, down from 16.1 mln tonnes in the same month last year. The third quarter looks like it could be a good one at this point. In July and August combined, arrivals to China from Brazil totalled 37.3 mln tonnes, up from 36.4 in July-August 2018. Australia had to opportunity to pick up the slack, but somehow didn’t. China saw 454.6 mln tonnes of iron ore arrive from Australia in the first 8 months of 2019, down 2.2% year-on-year from 465.0 mln tonnes in the same period last year. Volumes arriving from Australia were fairly constant throughout the year, but were hit by their own supply disruptions, in this case weather-related. Whilst imports from Australia averaged 56.8 mln tonnes per month so far this year, April was very disappointing, with just 43.1 mln tonnes, down from 57.6 mln tonnes in the same month last year. Elsewhere, arrivals from South Africa increased by 2% y-o-y in the first 8 months to 23.3 mln tonnes, whilst arrivals from Peru jumped 2.9% to 12.1 mln tonnes, and Ukraine jumped 16.6% y-o-y to 4.7 mln tonnes”, the shipbroker concluded.

Meanwhile, another market for dry bulk carriers, could be on the mend. Banchero Costa said in a recent note that “South Korean coal imports were running significantly below expectations in the first half of 2019, but now appear to be recovering quite strongly in the third quarter of the year. In the first 6 months of 2019, South Korea imported 59.4 mln tonnes of coal, including both thermal and coking grades, according to vessel tracking data from Refinitiv. This was a disappointing -4.9% year-on-year from the 62.4 mln tonnes which arrived in the same period of 2018”.

“However, the last two months – July and August – have shown significant improvement. In these two months, the nation imported 23.6 mln tonnes of coal, up +8.6% year-on-year from the same two months in 2018. The total for the first 8 months of 2019 is hence 83.0 mln tonnes, just -1.3% year-on-year, and if current trends continue we could even see 2019 end roughly in line with last year. In 2018, total coal arrivals to South Korea based on vessel tracking reached 124.7 mln tonnes, which was -4.1% down on the record 130.0 mln tonnes of 2017, but still nevertheless higher than the 123.1 mln tonnes of 2016. Australia, Indonesia and Russia are the three largest sources of imported coal to South Korea: in the first 8 months of 2019, 41.3% of total South Korean coal imports were from Australia, 19.0% were from Indonesia, and 16.5% were from Russia. Canada, Colombia and South Africa are other important sources”, said the shipbroker.

According to Banchero Costa, “loading sources have changed quite dramatically in recent years, much more so than the total volumes. In the first 8 months of 2019, South Korea imported 34.3 mln tonnes of coal from Australia, which was +20.1% yearon-year from 2018, but essentially in line with the 33.1 mln tonnes in the same period of 2017. Volumes from Indonesia have been steadily shrinking in recent years. In the first 8 months of 2019, South Korea imported 15.8 mln tonnes of coal from Indonesia, which was -19.5% year-on-year from the 19.6 mln tonnes in the same period of 2018. In the first 8 months of 2017 the volumes were even higher, at 21.1 mln tonnes. On the other hand, quantities sourced from Russia have been remarkably stable. South Korea imported 13.7 mln tonnes of coal from Russia in January-August 2019, +2% year-on-year from the 13.4 mln tonnes in 2018, which in turn were flat on the 13.4 mln tonnes in the same period of 2017 The reasons for the poor activity in the first half of the year stem from both a weak economy in South Korea this year, and renewed government efforts to tackle air pollution in the country. South Korea’s economy contracted more than expected in the first quarter as exports and construction investment were downgraded from initial estimates. GDP shrank 0.4% in the first quarter from the previous three months, the worst performance since the global financial crisis. South Korea’s trade-dependent economy has been battered by falling exports, which tumbled a worse-than-expected 9.4% in May, a sixth-straight drop, as slowing global growth, a trade spat with neighbour Japan, and a downturn in the semiconductor industry take a toll on Asia’s fourth-largest economy. However, the Bank of Korea still expects the economy to recover in the second half of the year and expand 2.5% in 2019”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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