China’s bulk imports slowdown ahead?

After another period of vigorous growth in China’s dry bulk commodity imports, the upwards trend looks set to continue in 2014. But the expansion rate this year may be much less rapid than the impressive 13% increase seen last year, although opinions vary. Some forecasters point to influences which justify optimism about another strong performance.

Prospects for China’s commodity purchases are a key aspect of the outlook for global trade because these comprise such a large part. Following phenomenal growth over the past decade, dry bulk cargo imports into China now comprise about one-third of world seaborne trade in this sector. There is still potential for further sizeable advances.

The pace of economic activity in China over the twelve months ahead will have a noticeable effect on commodity consumption, although other factors could modify the impact on imports. Last year, according to official figures, GDP growth was maintained at the previous year’s 7.7% rate. Signs of changes likely to lead to a slowing were evident, however.

A recent (late January) IMF forecast suggested that a slightly less rapid 7.5% growth rate is foreseeable in 2014, possibly followed by sustained slowing. The Chinese economy performed robustly in last year’s second half mainly due to accelerating investment spending.This strength is expected to prove temporary, amid restrictions on credit availability and higher interest rates.

IRON ORE RISING

Over half of China’s dry bulk imports consists of iron ore. Last year saw another huge increase, almost 75mt (million tonnes) or 10%, compared with the figure for the previous twelve months, raising the annual iron ore imports total to 820mt, as shown by the table. This volume, including some land movements but mostly seaborne, comprises two-thirds of global iron ore trade.

To a large extent this rise reflected higher steel production at Chinese mills. Crude steel output in 2013 was up by over 7%, at 779mt. The more specific indicator, pig iron production at blast furnace mills, showed an 8% increase, to 709mt. These provisional World Steel Association figures probably will be revised upwards when more accurate data is available.

Decelerating expansion of iron ore imports is envisaged this year. But some forecasters remain optimistic, suggesting that a surge in global iron ore export availability could weaken international prices, improving the competitiveness of foreign supplies compared with domestic Chinese ore. Nevertheless, recently rising iron ore stocks are seen as a possible restraint on import demand. Also, there are doubts about the strength of steel demand.

COAL GROWING

In 2013 China’s imports of coal, including lignite, expanded massively by 38mt or 13%, reaching 327mt. The largest incremental volume was coking coal for the steel industry, which grew by 18mt (33%), to 71mt. Steam coal, mainly used by power stations, was 8mt (4%) higher at 189mt while low-grade lignite, also used in power generation, was 11% up at 60mt.

These volumes are large in the context of global coal trade. As a proportion of the Chinese domestic coal market though, imports are still a small proportion despite rapid growth over recent years. Most consuming industries are mainly supplied by domestic coal mines. Import purchases are greatly affected by differences between the delivered cost of foreign supplies and domestic prices.

Further growth in coal imports seems likely over the year ahead. Predicting how large an increase is more difficult. In addition to uncertainty about relative prices, there are other complicating factors. Measures to control air pollution from coal-fired power stations is one aspect, together with attempts to reduce imports of low-grade coal, especially lignite mainly derived from Indonesia.

GRAIN AND SOYA INCREASING

Positive influences affecting cereals and oilseeds imports into China are visible. A strong upwards trend in consumption is accompanied by weaker domestic production growth (or, for soyabeans, declining output). Consequently, widening opportunities for exporters are unfolding in the Chinese market. Soyabeans form the biggest element of imports in this category, and official statistics shown in the table reveal that there was a 5mt or 9% increase last year, raising the annual total to more than 63mt. Imports of the main grains — wheat, corn, barley and oats — were almost flat at about 11mt.

Last summer’s domestic grain harvest in China was recently revealed to have been larger than estimated earlier, rising by about 4% to reach 348mt. This increase has limited import demand potential, but foreign purchases in 2014 are still likely to grow. Soyabeans output, a much smaller part of that market segment, was lower last autumn and, together with rapidly expanding usage of soyameal and oil, the result is expected to be additional imports.

MINOR BULKS ADVANCING

Among China’s imports many other dry bulks are prominent. Bauxite/alumina and nickel ore have become large elements, while manganese ore, steel products and woodpulp also are sizeable. Most of the growth last year was seen in minerals, especially bauxite/alumina which increased by 30mt or 67% to over 75mt.

The outlook for this diverse sector is mixed. Imports of some commodities may increase further in 2014. Conversely, decreases are quite possible elsewhere. Some of last year’s expansion was connected with stockbuilding in advance of minerals export controls now implemented in Indonesia, a major supplier. Any destocking over the next twelve months could adversely affect imports.