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China is struggling to find its pacing

China is struggling to find its pacing among the great volatility of the worldwide economy. On one hand the energy crisis and the inflationary surge and on the other hand the real estate sector crisis along with the economy lockdowns against Covid, are a brake on China's economic growth & development. Considering that in 2020 Chinese imports tonne mile demand accounted for about 49% of total dry bulk tonne miles and when measured in tonnes, China’s share was up to 35% of the total, it is an easy observation that the dry market is heavily related to China’s growth. Taking into consideration the 20 main spot freight rate routes from/to China, it is observed that Capesizes are used for Coal and Iron Ore trade, Kamsarmaxes and Panamaxes are used for Grain, Coal and Iron Ore trade and Supramaxes are used for the Coal trade. There are 8/20 Capesize routes (3 for Coal and 5 for Iron Ore), 4/20 Kamsarmax routes (2 for Grain, 1 for Coal, 1 for Iron Ore), 6/20 Panamax routes (2 for Grain, 3 for Coal and 1 for Iron Ore) and 2/20 Supramax routes (both for Coal). Concerning the type of trade goods, 4/20 routes are for Grain trade, 9/20 routes are for Coal trade and 7/20 routes are for Iron Ore trade.

Its more than obvious that all the major drybulk vessel types are exposed to the volatility of the Chinese economy. Beijing has already restarted lockdowns across the country in order to protect its zero covid policy preventing industrial production from recovering to post Covid levels. China’s economic planners have, for months, been moving to unwind efforts to deleverage the sector and encourage people to buy new houses while China’s central bankers have eased lending rules and cut interest rates (recently the People's Bank of China lowered its key loan prime rates, this is the second reduction this year) in a bid to combat the downturn without any success until now. These have resulted in lower steel production than expected (-5% for July y-o-y), lower steel exports for the first half of 2022 (10.5% lower than first half of 2021), signalling that the demand for iron ore and coal is lower than the previous year and than expected.

Between July 2021 and July 2022 exports of China's Iron Ore have decreased by $-166M (-44.4%) from $374M to $208M while imports of China's Iron Ore have decreased by $-6.39B (-35.6%) from $17.9B to $11.5B, while when measured in tonnes the decrease is about 4%. Iron ore price is moving south, far away from the years high and it may tempt China to start increasing iron ore stockpiles that had hit yearly lows in May 2022. On the coal market, China has significantly increased its domestic coal production in order to reduce coal imports, with seaborne coal imports from Australia & Indonesia significantly reduced, having been replaced by imports from Mongolia & Russia. Data from the National Bureau of Statistics shows total coal imports of 115 million tonnes for the first half of 2022, reduced by 17.5% fall y-on-y.

China is also dealing with its longest, most severe drought since the early 1960s that has hit the Central & Southwestern areas as well as with floods in the Northeast that have threatened grain harvests - mainly corn & rice. According to commodities analysts, the corn production is expected to decline by 4.5 million tons, resulting in China having to import more grains to feed its livestock herds and shore up domestic stocks. But despite that fact, China’s total grains imports (not including rice) are estimated at 49.8 million tonnes in 2021-22, revised up from July previous forecast of 49 million, and down from 60.8 million the year before (-18%).

As we see China’s trade in the three major commodities that affect the dry bulk market is significantly lower not only compared to previous years but also than expected. Meanwhile the reducing of port congestion and the huge release of bulkers stuck in queues outside China’s southern ports has added a great number of vessels to effective fleet growth y-o-y. The reduced vessel demand from China’s side, along with the gradually increased supply of vessels while China plays such a big part on the tonne mile demand explains why there are downward pressure on freight rates for the last three months and especially for sizes larger than Supramaxes. But the future seems to be brighter than the numbers show. Chinese economy with the stimulative policies will soon manage to efficiently support and secure its Real Estate & property sector, the flows of discounted Russian oil & gas will keep the energy costs at normal levels and the industrial growth and production on the tracks and along with the seasonality of the world trade, the dry bulk market will move to healthier levels, bringing back smiley faces to the shipping community.

Sale and Purchase:

The dry market remained inactive for another week, with only a handful of sales to report. On the Handymax sector, the “Blueways” - 47K/1998 Mitsui Tamano was sold for below USD 6 mills basis prompt delivery in China. On the Handysize sector, the BWTS fitted “Malto Hope” - 28K/2013 Imabari sold for USD 13.6 mills to Middle Eastern buyers. However, we have witnessed a significant number of vessels that invited offers during the past week. On the Panamax sector, the “Dooyang Jeju” - 77K/2002 Imabari is rumoured to have seen region USD 10.5 mills. The BWTS fitted Ultramax “ASL Grace”- 60K/2015 Onomichi invited offers and best had seen was in excess of USD 27 mills. Finally, the Handysize “Eco Destiny” - 35K/2005 Shikoku is under discussions in the mid-high USD 12 mills.

In the tanker sphere, the intensity in sale & purchase activity remains, with several sales to report. On the LR2 sector, the uncoiled “Lila Fujairah” - 114K/2007 Daewoo changed hands for USD 27.8 mills. Moving down the sizes, the BWTS & Scrubber fitted MR2 “Hyde” - 47K/2007 HMD was sold for mid/high USD 22 mills. Furthermore, the BWTS fitted, Ice class 1A & CAP 1 “Gotland Carolina” - 53K/2006 GSI was sold for USD 18.6 mills to Norwegian buyers. On the Chemical sector, the “Tiger Integrity” - 25K/2018 Kitanihon, the “Tiger Joy” - 25K/2017 Shitanoe, the “Tiger Glory”- 25K/2017 Fukuoka, the “Tiger Tenacity” - 25K/2017 Kitanihon & the “Tiger Harmony” - 20K/2016 Kitanihon found new owners for USD 180 mills enbloc. Last but not least, on the same sector, Chinese buyers acquired the “Celsius Mexico” - 21K/2008 Shin Kurushima for USD 15.5 mills.

Xclusiv Shipbrokers Inc.