Demand for imported dry bulk commodities from Chinese buyers this year has been disappointing for optimists. While signs of growth resuming in the biggest trade, iron ore, were clearly visible, the pattern elsewhere showed a weakening picture. But in some key trades which have faltered there are indications that a pick up during the second half of 2011 could occur.
The performance of China’s economy has not been unfavourable for commodity consumption. Although GDP growth decelerated to a 9.6% average in this year’s first half, compared with 10.3% annual expansion during 2010 as a whole, it was still a very brisk pace. More specific influences are critical for several commodities, and changes in these could result in regained imports momentum over the months ahead.
 
RISING IRON ORE IMPORTS
Iron ore imports into China began 2011 very strongly. The first quarter total, at 177.1mt (million tonnes), was a record high quarterly figure, and the January–June volume of 334.3mt was 8% above last year’s same period. Growing steel industry output assisted. Blast furnace pig iron production in the first half was up
Coal being moved along the Huangpu River in Shanghai, China (photo: Andy Simons).
by 6% at 322mt, amid buoyant demand from construction projects and manufacturing activity.
In addition to pig iron production trends, two other factors also have a large influence on China’s ore purchases from foreign suppliers. Iron ore produced by domestic mines is massive and continues to increase very rapidly. Last year’s rise of over one- fifth to 1.07bn tonnes was instrumental in reducing iron ore imports. Further strong output growth apparently has occurred since then.
Another aspect is stocks. Reports point to a very high iron ore inventory volume at ports recently. Coupled with the impact of the upwards trend in domestic ore supplies (although these are mostly relatively low-grade material), the outlook for import purchases over the remainder of this year is not entirely clear. Nevertheless, import volumes are widely expected to remain buoyant, resulting in an annual increase.
 
COAL IMPORTS REBOUNDING?
China’s coal imports in the first half of the current year contrasted sharply, falling by 13% compared with the volume seen in January–June last year, to 70.8mt. In first quarter 2011 a particularly low volume was recorded, at 32.4mt (the lowest since the first three months of 2009). Subsequently a pick up was apparently beginning.
Expectations of a longer-term growth trend still seem valid, and some positive influences could have an impact in the immediate future. Demand for coal in the power generation sector, steel mills and other industries continues to grow robustly. China’s coal market remains tight, despite strong expansion of output at domestic mines, where production reportedly rose by 13% to reach 1.77bn tonnes in first half 2011.
Imports at the start of this year’s third quarter were at a record high monthly level, emphasizing market tightness. An extended boost over the next few months could be derived from receding hydro-electricity supplies and a narrower gap between
Prospects for related wheat and coarse grains imports, although a much smaller element, have improved recently. A tightening Chinese market for these grains has already resulted in some additional volumes emerging. Although domestic wheat and corn production could rise moderately in this year’s harvest, 2011 imports may rise to around 5mt or more.
 
A POSITIVE OUTLOOK
Among other dry bulk commodity import trades there are some large elements, such as bauxite/alumina, where the outlook is quite promising. Steel products may be an exception. An increasingly sophisticated Chinese steel industry is offering a wide range of high-quality products, reducing potential for foreign suppliers to compete. For overseas suppliers of many ‘minor’ raw materials, however, the future seems bright.
The outlook is greatly dependent on how China’s economy progresses. Some further loss of momentum during the second half of 2011 is widely predicted, possibly extending through next year. Currently this does not seem likely to be especially severe. But inflation has become a bigger problem, and attempts to control this may result in a more pronounced slackening of activity. Slowing growth in other economies could also have adverse repercussions.
Features of China’s economic development objectives imply solid support for dry bulk commodity consumption and import demand. Within the twelfth five-year plan period now starting, spending on large-scale infrastructure projects will remain a key element.
A near-term priority is the building of 10 million social housing units during 2011, within a total of 36 million over the full plan, benefiting steel production.    
 
Richard Scott