lot has been said regarding the dry bulk
market’s rebound and future potential, however, much will come down to China’s
and India’s dry bulk commodities’ demand growth, most notably iron ore and
In China, shipbroker Banchero Costa recently
said that “Chinese steel production has proved surprisingly resilient this
year, as the government pushed forward more infrastructure and construction
investment to compensate for the negative effects on jobs and growth that the
trade war is having on the manufacturing sector. China’s crude steel output hit
a record high of 89.09 million tons in May, up from 85.03 million tons in April
and 81.13 million tons in May a year ago, according to data from the National
Bureau of Statistics, even as a jump in prices of raw materials, particularly
iron ore, cut into mills’ profit margins”.
“However, in the first five months of 2019, China
imported just 423.92 million tons of iron ore, which was down 5.2 per cent on
the same period in 2018, according to customs data. The figure for May, this
year was 83.75 million tons, up by 3.7per cent month-on-month from April but
down 11 per cent year-on-year from May 2018.
Spot iron ore prices, the highest levels in
more than five years
Unfortunately for the shipping industry, this is
almost entirely due to iron ore supply constraints in Brazil, and to a smaller
extent in Australia, and the skyrocketing price of this commodity. Spot iron
ore prices have jumped to the highest levels in more than five years, with
benchmark 62 per cent fines for delivery to China at 117 US Dollars a ton at
the end of June, according to sources.
Iron ore inventories at China’s 45 major ports
have fallen to 116.75 million tons at the end of June, down 21 percent from a
recent peak in March, and the lowest level since the start of 2017. Steel mills
are also starting to prefer lower grade iron ore.
iron ore rallies, likely Chinese mills switch to lower grade ore
If iron ore continues to rally, or even remain at
elevated prices, it’s likely more Chinese mills will be tempted to switch to
lower grade ore, which will benefit Australian exporters, but also provide some
lifeline to the moribund domestic Chinese mining sector.
Domestic iron ore mines are producing more iron
ore, while mills have also sharply increased the use of scrap in the converter
burden to cut back on iron ore usage, according to the China Iron and Steel
Meanwhile, in a separate dry bulk trade, i.e.
Indian coal imports, Banchero Costa said that “during the first quarter of 2019
the most dynamic and fastest growing major commodity was coal which grew an
estimated 7 per cent compared to the first quarter of 2018.
recorded two digits growth in coal import in FQ of 2019
Whilst Coal imports into China and Japan the
first and third largest importers were slightly lower during the first quarter
of 2019 compared to same period of 2018, there was a very large number of
countries where imports recorded two digits growth (in a few cases three digits
growth); to name the largest India, Taiwan, Malaysia, Thailand, Vietnam,
According to the shipbroker, “it is clear that
with the economic development, the Indian Subcontinent and South East Asia are
quickly becoming the new sources of demand for the coal trade. The single
largest driver was India with imports that increased 14 per cent (1Q18 vs.
1Q19) to over 56 million tons.
India is set to rival China again as the largest importer
of coal in 2019, a record briefly detained in 2015 and 2016. Where is India
sourcing all this additional coal? SE Asia (i.e. Indonesia) exports to India
only increased 2 per cent, whilst imports from North America, both from the
Atlantic and Pacific basins increased 41 per cent and 35 per cent respectively;
a lot more coal was also imported from Australia +12 per cent:
importing more coal and also from further away
Not only India is importing a lot more coal, it
is also importing it from further away. If we compare coal imports in the first
quarter of 2017 and the first quarter of 2019, we can see that despite the
trends just described above the share of imports by each vessel size did not
change much with smaller size vessels like Supra Max sourcing 22 per cent (was
21 per cent in 2017) of coal, Pana Max 40 per cent (was 37 per cent) and Cape
Size 29 per cent (was 28 per cent).
imports offer demand growth for Supra Max, Pana Max and Cape Size
One would believe that importing a lot more and
from further away the vessels’ choice would move to bigger units, but, mainly
due to draft restrictions in Indian Ports, this is not the case for Indian
imports that offer good demand growth both for Supra Max and Pana Max and also
for Cape Size”, Banchero Costa concluded.