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Signs of distress for Chinese dry bulk imports

China’s imports of iron ore and soya beans fell in 2018, down 1% and 7.9% respectively, while a 3.7% growth in coal imports was slower than the growth in 2017.

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Chinese bulk imports have become increasingly important as the world’s second largest economy has grown at a high rate, according to shipping association Bimco. However, with more and more indicators pointing to a different Chinese growth going forward and increasing trade tensions with the world’s largest economy, things may be changing.


China is not isolated in facing difficulties. Bimco pointed to global manufacturing PMI, which fell to 51.5 in December, and the IMF’s prediction that global growth will fall from 3.7% in 2018 to 3.5% in 2019.


“Slower growth and outright declines in Chinese bulk imports will harm the shipping industry and the many shipowners who for years have relied on China’s growing imports to ensure employment for their ships,” said Peter Sand, Bimco’s chief shipping analyst.

(Source: Bimco, GACC)
(Source: Bimco, GACC)

Total annual iron ore imports to China fell in 2018 compared to 2017, totalling 1.06 Bt. Despite it being a small decline, just 1% lower than imports in 2017, this likely marks a turning point in Chinese iron ore imports, according to Bimco.


2018 was the first time since 2010, that annual imports were lower than the previous year, and given new policies and more efficient steel mills, 2017 may have been the peak year for Chinese iron ore imports. Even though imports fell in 2018, it was still the third year in which China has imported over 1 Bt of iron ore (1.08 Bt in 2017, 1.02 Bt in 2016).


However, lower iron ore imports have not translated into lower steel production. Instead more efficient mills and in particular electric arc furnaces, which use scrap to produce steel, have been able to increase production while reducing demand for iron ore. The authorities have also set targets to increase the use of scrap in steel production to reduce pollution.


“Iron Ore imports may start to drop at an even faster pace than we saw in 2018,” said Sand. “Therefore, what is usually a mega-driver for dry bulk shipping demand may start to fade and dry bulk ships will have to look for new cargoes.”


Chinese coal imports grew 3.7% in 2018 to reach 281.2 Mt, but Bimco argued that this growth disguises a year of two halves. The month with the highest imports in 2018 was July (29.01 Mt), at which point accumulated growth was at 14.7%. After July, imports fell on a monthly basis, culminating with only 10.2 Mt in December. By comparison, December 2017 saw China import 22.7 Mt of coal.


Anecdotal evidence suggests that the Chinese customs authorities stopped clearing coal shipments in December. High domestic supplies and a lower growth in electricity demand, combined with high stocks, led the authorities to wanting to keep imports below 2017 levels, during which China imported 271 Mt of coal.


“Chinese coal imports rely heavily on government decisions and policies and therefore remain a swing factor in 2019,” said Sand.


Chinese soya bean imports fell to 88 Mt in 2018, down 7.9% from 2017. A 25% tariff on US soya beans arriving in China in place since July and increased hostilities between the two nations is behind much of this fall.


In past years, China has relied heavily on US soya beans from September through to the end of the year, with Brazilian soya beans more important during the first half of the year. In 2017, China imported 32.9 Mt of soya beans from the US. This fell to just 16.6 Mt in 2018. This means a loss of 218 Panamax loads (75,000t) of soya beans from the US to China in 2018.


Brazil managed to meet some of the additional Chinese demand for non-US soya beans during the fourth quarter, despite its normal export season running from March through to July. In Q4 2018, Brazilian soya bean exports to China were 131.2% higher than those in Q4 2017. In the full year 2018, an extra 15.3 Mt of soya beans were exported by Brazil to China, the equivalent of an additional 204 Panamax loads compared to 2017.


“Lower soya meal content in pig feed to reduce demand for soya beans, tapping into stocks and increased imports from elsewhere have allowed China to shy away from US soya beans for the whole of 2018,” explained Sand.


“Ongoing trade talks and an apparent Chinese promise to increase imports from the US have led to Chinese buyers slowly increasing their imports of US soya beans in the last few weeks of 2018 and into 2019. But the result of this round of trade talks will likely set the tone for this trade in 2019.”


Despite much talk in the US that China had started buying large amounts of US soya beans, data from BullPositions suggests that only 545,000t were shipped from Pacific ports to mainland China in the first four weeks of January.


Yesterday (31 January), at the end of two days of US/China trade talks in Washington, no deal was reached, but Asia’s powerhouse pledged to buy more US soya beans, a commodity that has been at the forefront of negotiations. The White House said that China had agreed to purchase an additional 5 Mt of soya beans.


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