Anxiety about China’s dry bulk imports

Optimism about China’s dry bulk imports over the longer term
is still largely intact. But confidence in the upwards trend
continuing strongly during the period immediately ahead has
been dented. Indicators emerging recently point to restraining
influences becoming more prominent. The pattern is most
obvious in iron ore movements, the biggest part of this vast
market.
For some time a slowing growth trend in dry bulk imports
into China has been expected, although the slowdown now
apparently under way seems sharper than many predictions. Last
year’s astonishing upsurge was generally seen as unrepeatable. As
shown by the table, imports of iron ore, coal, soyabeans and steel
products — the largest dry commodity imports — increased by
282mt (million tonnes) to 819mt in 2009, a 53% rise from 537mt
FALTERING IRON ORE IMPORTS
Clear signs of faltering import demand have been seen in the
iron ore sector. In 2009 there was a massive 42% increase,
raising the annual quantity to just over 628mt. Volumes received
at China’s ports during the first half of 2010 averaged 51.6mt
monthly, totalling 309.4mt. While that figure is 4% above last
year’s first half total, it is slightly below the overall 2009 average.
In the short term, monthly volumes could remain flat or
weaken, before a possible revival begins towards year-end. This
outlook suggests only very slow or minimal growth in Chinese
iron ore imports during 2010 as a whole, a stark contrast with
the highly robust upwards trend seen over the past decade. It is
even becoming realistic to foresee an actual (probably small)
reduction this year. If that occurs, it will be the first decline since
1998, when full-year annual imports (51.8mt) were similar to the
current monthly average.
What has caused this apparent step-change in the trend?
Domestic usage of steel seems to be slackening, with adverse
effects on output at Chinese mills, although exports of steel
products have picked up. Strongly rising domestic iron ore
production, and large stockpiles at ports are also factors.
Moreover, resistance to the much higher contract prices for
international ore supplies, recently prevailing, appears to have
VIGOROUS COAL IMPORTS
An equally remarkable expansion occurred last year in China’s
coal imports, and a further substantial increase is foreseeable in
2010. Last year’s upturn was a surprise after the preceding
decline. The 2009 total rose by 210%, reaching 126.6mt,
averaging 10.6mt monthly. Coking coal imports rose five-fold to
over 34mt last year, while steam coal was 170% up at 92mt.
During the 2010 first half, Chinese coal buyers imported just
over 81mt, a 68% increase from last year’s same period. This
year’s second half is unlikely to show growth of that magnitude,
however, as the annual 2009 additional volume was concentrated
mostly in the second half, and a similar pattern this year is not
generally envisaged. But a sizeable annual rise does look quite
likely.
The Chinese coal import market is a difficult one to analyze
and forecast. Although now much larger than a couple of years
ago, imports are still only a minor element of overall demand,
most of which is satisfied by supplies from domestic mines, which
totalled 3.1 billion tonnes last year and are rising. The changing
differentials between domestic and international prices are
influential, especially for importers in the southern coastal
SOYABEANS PURCHASES BUOYANT
Other commodity imports into China are not in the same league
as iron ore and coal but, nonetheless, have a big impact on ports
and bulk carrier employment. Soyabeans imports in 2009 were
up again, by about 14%, at 42.5mt. And, so far this year, a robust
upwards trend is continuing, with almost 26mt received during
the first six months, pointing to another annual rise in 2010.
Strongly growing soyameal and soyaoil consumption has
underpinned foreign purchases, while a reduced domestic
soyabeans crop last autumn also has been supportive. Soyoil
imports weakened in the past year, benefiting beans imports.
Inventories of beans, boosted by China’s official policy of holding
HOW MUCH GROWTH AHEAD?
A cautious view of short-term prospects for dry bulk commodity
import growth into China is now becoming more respectable.
The less positive overall trend possibly could continue beyond
the end of this year. Individual commodities will not all be
affected proportionately: some may exhibit further expansionary
tendencies. However, a slowdown in foreign purchases of steel
industry raw materials is likely to be a prominent factor.
While specific influences affect individual commodities, the
economy’s progress has a wide impact. A slowing tendency is
emerging, as an intended outcome of government policy. The
massive economic stimulus programme — including huge
additional infrastructure spending — implemented through 2009,
coupled with greatly increased bank lending, successfully boosted
GDP growth. But signs of overheating and over-investment have
multiplied.
The World Bank’s latest estimates put China’s GDP growth at
9.5% in 2010, almost one percentage point faster than last year’s
rate. Next year a lower 8.5% is forecast. Government-led
investment is decelerating, amid a slowdown in bank lending.
Tightening measures to control the housing market have been
introduced. Against this backdrop, dry bulk commodity imports
may show less vigour over the next twelve months than seen in
the recent past.