chinese bulker

China - The Wounded Dragon of Dry Bulk Shipping

China is the country with the largest population worldwide (about 1.38 billion) and according to IMF its economy is the second largest in the world –after USA – in terms of GDP (with about USD 10.80 billion) and the largest in terms of purchasing power parity. Furthermore, until 2015, China was the world's fastest-growing major economy, with growth rates averaging 10% over 30 years. Since China has also the largest manufacturing economy in the world and it is the largest exporter of finished goods, it is also a major importer of raw materials.

Given its strong economic activity as well as its developing status along with its considerable growth, China has played a very important role in the dry shipping industry, especially during the last 15 years and it is still the main barometer of the market dynamics in this industry.

Importing & Exporting Activity

From the perspective of the cargoes registered in the online map of OpenSea, it is apparent that China is a major importer, especially of the three main dry bulk commodities namely iron ore, coal and grains while it also exports minor bulk cargoes in small quantities.

Iron ore is the dry bulk cargo with the largest activity worldwide representing almost the 30% of the total seaborne trade and China is by far the largest importer in the world importing more than 70% of the total iron ore which is traded by sea (as per 2016 data). The below table shows the development of the Chinese imports of iron ore from 2010 to 2016. It seems that the imports are gradually increased and the total growth between 2010 and 2016 is about 66%. In view of this, the share of the Chinese imports of iron ore has been increased to 72% of the total in 2016 as compared with about 62% six years earlier. Since iron ore is mainly loaded in capesize bulk carriers, the dependence of this dry bulk sector on the performance of the Chinese economy is too high.

Table 1: Imports of Iron Ore (million tons)

imports of iron ore

Coal (both coking and thermal type) is the commodity with the second largest seaborne trading activity accounting for about 25% of the total world trade. China is one of the three major importers of coal however since it is also a large producer, its importing activity highly depends on the domestic production and domestic prices. Therefore, its imports soften during periods of higher domestic production and thus governmental policies may play an important role in the world trade. For this reason, by looking the historical imports of coal (Table 2) there is some fluctuation with the Chinese imports representing about 15% of the global imports of coal in 2010, growing to about 22% in 2013 and falling to 14.41% in 2015. At the moment, China stands at the third position of the countries importing coal with about 15% of the global seaborne imports, falling below India whose imports have experienced a growth and Japan whose imports have remained steady.

Table 2: Imports of Coal (million tons)

imports of coal

Grains is the third major dry bulk commodity traded by sea, representing about 9.50% of the total dry bulk trade. China is one of the major producers of grains but instead of exporting same, it consumes domestically and in order to cover its increased domestic needs, its imports have recently been increased making China the biggest importer with about 23 million MT, or about 7% of the global imports.

Table 3: Imports of Grains (million tons, excluding soybeans)

imports of grains

Apart from these major commodities, China imports large quantities of minor bulk cargoes as well. Therefore, we see China being a major importer of bauxite, nickel ore, sulphur and ore concentrates. On the other hand, cargoes of fertilizers, petcoke and steel products are exported out of China mainly in smaller quantities of handysize and supramax shipments.

Effects of the Chinese economy on the freight market

Due to the fact that China is a top importer of the three major dry bulk commodities, as well as an importer and exporter of other minor dry bulk cargoes, it seems to exist a very high dependence of the dry bulk market on the performance of the Chinese GDP in general and the Chinese imports in particular. The below graph shows how the BDI (from 2010 until H1 2016) interacts with the Chinese imports. By analyzing the data, it seems to exist a very high correlation between the two with the growth of the Chinese imports to directly affect the dry bulk market. On the other hand, the volume of raw materials imports is directly related to the industrial production of each country and the industrial production of China continuously slows down during the last 10 years and from about 17.6% on 2007 it has slowed down to 6.1% on September 2016, affecting the Chinese imports and subsequently the dry bulk market.

BDI vs Chinese imports

Future expectations

After a long-term growth of the Chinese economy when its GDP was even higher than 10%, it has recently slowed down and a further drop is expected the coming years. Therefore, from growth rates which exceeded the 10% between 2003 and 2007, the GDP growth has come down to about 6.6% during 2016 which is the lowest GDP growth rate for the Chinese economy since the 3.93% of 1990 and it also seems that a further slowdown is ahead of us with recent forecasts to speak for a GDP growth of about 6.2% during 2017 and around 6 - 6.2% for 2018. Therefore, the economic environment does not look strong. But what about the commodity markets? Let’s see what are the recent expectations in regards to the iron ore, coal and grains market.

  • Iron Ore: Chinese imports of iron ore are expected to grow by about 5% during 2017 mainly driven by the competitive international prices and the high quality of the Brazilian and Australian ore which substitutes the domestic output. On the other hand, this growth is lower than the expected growth of 2016 (about 7-8%) mainly due to the recent downturn of the country’s industrial production and the risk for lower steel output during 2017. This slow-down is expected to slightly affect the global iron ore trade which might be about 1% less than in 2016.

  • Coal: After a growth of the Chinese imports of thermal coal during 2016, we expect imports 2017 either to remain stable or experience a small decline. This is due to the fact that the growth of its power generation eases, while the Chinese government has recently taken measures so as the domestic production of thermal coal to be increased which will have a negative effect on the importing needs of the country. On the other hand, a growth is expected on the imports of coking coal mainly due to the government’s policy to cut the domestic production. Though, a decline of the steel output might have a negative effect on the demand for coking coal we don’t expect that it will have a material effect on same.

  • Grains: A heavy drop of about 30% on the imports of grains is expected to take place during 2017. It is mainly driven by the firm domestic production and the strong stockpiles. It may have an adverse effect on the grains sector which, according to the current expectations it may be softer of up to 3% during 2017.

It seems that the Chinese economy still suffers. The GDP remains at very low levels while the prospects on coal and grain imports do not look positive. The expected growth of the iron ore imports due to the better quality and more competitive price as compared with the domestic product may give a boost however even in this case the risk of a downturn in steel output may have a negative impact. China, who once upon a time was the hero of the dry bulk market, can not assist the industry to recover from its oversupply shock.

In such market conditions with the slowing Chinese economy, Charterers will definitely keep pushing the freight market down, while Shipowners will keep struggling and trying to survive. The OpenSea marketplace can support the plans of both parties. Shipowners can find alternative cargoes in other traditional routes if the trading activity of China softens even further, while on the other hand Charterers can find suitable ships faster. Another key advantage is that all our open positions are private, allowing Charterers to place their cargoes with freight ideas and Shipowners to safely place their tonnage, without the risk for both parties to be exposed in the overall market.

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