Source : https://www.hellenicshippingnews.com/chinas-import-surge-drives-optimism-in-dry-bulk-shipping-demand/
country’s Western trading partners.
China is the world’s biggest commodity importer, making up roughly 40% of the dry-bulk shipping market, and its rebounding economy has been driving a surge in prices for industrial commodities, including copper, aluminum and cotton.
With China’s overall imports up 13.2% in September from the same month last year, shipping executives expect an increase in freight rates over the next year.
The growth comes despite the continuing tariff dispute with the U.S. and growing tensions with Australia, one of China’s biggest commodity trade partners. Beijing has slapped duties on Australian beef and barley exports and has been taking in fewer shipments of coal over the past month.
“China will push on with its stimulus efforts into next year and this will support dry-bulk rates,” said Peter Sand, chief shipping analyst at industry trade body Bimco. “If the world doesn’t shut down again, there will be a global net restocking, which means more shipments.”
Daily freight rates for dry-bulk carriers are among the most volatile in the shipping sector. The spot rate for capesize ships, the biggest dry bulk vessels, has dipped to around $18,000 from $35,000 in mid-October, when a dozen cargoes of Australian coal destined for China were canceled, according to shipowners and brokers.
The Baltic Dry Index, which tracks the cost of moving commodities, reached 1,415 on Friday, up slightly from earlier in the week but down from 2,186 on Oct. 6. Beijing is angry with Canberra over the latter’s push for an independent probe into the origins of the pandemic and a decision to ban telecommunications giant Huawei Technologies Co. from Australia’s 5G network.
Shipping executives and brokers expect overall demand for dry-bulk ships to grow by 3% on average over the next five years, from flat demand in 2020 compared with 2019, according to a Wall Street Journal survey of 13 dry-bulk operators.
“We believe Brazilian iron ore production and Chinese iron ore consumption remain key drivers of the segment,” Jefferies Financial Group Inc. said in a report this month, based on growing production guidance by Vale SA, Brazil’s biggest miner.
Oslo-based analysts at Jefferies expect gains in annual freight for dry-bulk carriers over the next three years as demand for transport outpaces available capacity and the order book for new ships remains very thin.
Brazil’s Vale SA produced 207 million metric tons of iron ore in the year through August, most of which it exported to Asia, said Pradeep Rajan, senior managing editor for Asia-Pacific shipping and freight at S&P Global Platts. The miner is expected to produce around an additional 105 million tons in the final stretch of the year, which is one reason why Mr. Rajan expects capesize rates to remain elevated.
“China has been really looking for iron ore from wherever [it] can get it in the world” in preparation for the five-year plan Beijing is due to begin in 2021, Mr. Rajan said.
U.S. soybean cargoes are feeding more optimism. American farmers exported 8.24 million metric tons of soybeans to China from the beginning of September to mid-October, from just over one million metric tons in the same period last year, when the trade dispute froze nearly all shipments, according to Bimco analysis of U.S. Agriculture Department data.
The expanded imports follow a trade agreement Washington and Beijing signed in January that calls for China to step up its purchases of U.S. farm goods.
Corn cargoes are also rising, with China’s commitments for U.S. corn purchases for delivery from September this year to August 2021 growing to around 10 million metric tons so far this year, up from only 59,000 metric tons at this time last year.
“There are a lot of grain cargoes to China,” said Basil Karatzas, chief executive of New York-based Karatzas Marine Advisors & Co. “They are stocking up because the dollar is low, and fears of supply shortages related to Covid-induced logistical challenges.”
The test for dry-bulk carriers will come in the first quarter, when demand for commodities typically tails off around 10% from the fourth quarter, as Chinese production slows during the Lunar New Year holiday.
That isn’t deterring optimism in the sector.
“Despite the seasonal fall, freight rates should stay solid because of pent-up demand in China and restocking,” said George Lazaridis, head of research at Athens-base Allied Shipbroking Inc. “If Covid doesn’t engulf the world again, dry-bulk looks positive over the next six months.”
Source: Wall Street Journal