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First decline in Chinese steelmaking since 2017

Chinese steel production dropped by 1 Mt in October, a decline of 1.2% compared to the same month last year. The country produced 81 Mt of crude steel in October 2019. This is the first decline in steel production year-on-year since December 2017.

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Bimco pointed out that the story unfolds quite differently when looking at the accumulated volumes of crude steel production. “In total, China has produced 829 Mt of crude steel through the first 10 months of 2019, an increase of 6% when compared to the same period last year”, the shipping association said.

 

“In fact, total steel production, in accumulated volumes, has been growing consistently since 2014, whereby steel production in 2019 is set to follow along the same trajectory with increased output year-on-year.”

Slowing Chinese GDP growth and heightened focus on environmental pollution could partly have driven the recent slowdown of steel production.

 

“The Chinese steel production tends to taper off towards the end of the year, whereby production in the final quarter is consistently lower than in the third quarter,” continued Bimco. “October’s decreased steel production might indicate that a similar slowdown could be expected in the fourth quarter of this year.”

 

What is in it for shipping? In the past, increasing Chinese steel production drove up iron ore imports, in turn contributing to demand for dry bulk shipping. However, as Bimco has previously reported, the Chinese steel mills are increasingly substituting iron ore with domestic scrap steel, negatively impacting the demand for Capesize transport.

“While the Chinese steel mills are producing record breaking amounts of crude steel, the growth rates for iron ore imports have remained in negative territory for the past 20 months,” said Bimco. “China has imported 877 Mt of iron ore through the first 10 months of 2019, an impressive amount indeed, but still down 1.6% in accumulated volumes year-on-year. A slowdown of Chinese iron ore imports will surely negatively affect the Capesize segment.”

 

There is mounting pressure on Capesizes. Freight rates for this tonnage have remained profitable in the last two quarters on the back of increased Brazilian iron ore exports. However, in November 2019, the freight rates dipped towards US$20,000 per day and have since hovered around this level.

 

“Lower iron ore imports in November and December might put the freight rates under even greater pressure,” warned Bimco.

 

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