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Trade war ceasefire good news for dry bulk

Following an almost total halt in exports of soya beans to China in Q4 2018, the New Year has brought new hopes for US farmers and the dry bulk shipping sector.

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The USDA has reported that in the first four weeks of 2019, 754,609t of soya beans were ready to be shipped in China, up from only 25,347t in December.

 

In addition to the ready shipments, on 5 and 6 February, the USDA reported sales totalling 3.2 Mt of soya beans to China, the majority of which is to be delivered between now and 1 September 2019, the start of the next marketing year.

 

At the beginning of December 2018, the US and China agreed to delay planned tariff hikes to allow for a period of negotiation with the aim of ending the trade war.

 

As part of this China allegedly promised to resume its purchases of US soya beans, and during the latest round of talks, China offered to buy 5 Mt.

 

“Political promises are beginning to materialise in a trade that has faced huge uncertainty since the start of the trade war,” commented Peter Sand, chief shipping analyst at shipping association Bimco. “This is good news for the struggling dry bulk market as it generates a much-needed increase in tonne-mile demand.

 

“The ongoing negotiations between the US and China are now approaching the 2 March deadline, at which point either some tariffs will rise, the ceasefire will be prolonged, or tariffs will be removed. Only the last option would allow US soya beans to be able to compete with the Brazilian soya beans expected to arrive in the market in a few weeks.

 

“In a politically unstable environment, uncertainty for the future of this trade remains high, and US farmers therefore face difficult decisions as to what to plant for next season,” he added.

 

Chinese imports of US soya beans had all but ground to a halt in Q4 2018 following the implementation of 25% tariffs on soya bean imports from the US in July 2018. The US exported 98.2% fewer soya beans to China in the first seventeen weeks of the 2018/2019 marketing season, which started on 1 September 2018, compared to the same period of the last season.

 

As of 31 January 2019, the USDA reported inspections of 21.5 Mt of soya beans for export in the 2018/19 marketing year, down from 34.7 Mt in the same period of the last marketing year. According to Bimco, this represents a loss of 13.3 Mt, or 177 Panamax loads (75,000t), and shows how important the Chinese market is for US soya bean exporters.

(Source: Bimco, ComexStat)
(Source: Bimco, ComexStat)

Total Chinese imports of soya beans in 2018 were down 7.9% from 2017. Reduced soya meal content in pig feed and using previously built-up stocks, as well as increasing imports from other countries, allowed China to avoid US soya beans and the 25% tariffs.

 

Brazil is the largest exporter of soya beans to China, and in 2018 met much of the extra Chinese demand for non-US soya beans. Its total, exports to China were 28.4% higher than those in 2017. Bimco pointed out that much of this came from an increase in exports in Q4 2018.

 

The last three months of the year are usually peak time for US soya bean exports, with lower exports from Brazil as its exporting season runs from February to August. In Q4 2018, Brazil exported 13.9 Mt of soya beans to China, more than twice as much as the 6.1 Mt in Q4 2017.

 

“We expect to see soya beans from Brazil on the market earlier than usual this year, beginning in the second half of February,” said Sand. “These soya beans will compete with those from the US, with sellers likely to continue exporting through their off-season.”

 

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