China’s dry bulk imports growth resumes

One of the more surprising aspects of global dry bulk commodity trade, last year, was a robust upturn in China’s vast imports. Following a slight decline in the China total during the previous twelve months, there were no signs of a vigorous pick up at the beginning of 2016. But both iron ore and coal, the biggest elements, proved much stronger than generally expected.

Large changes in China’s import volumes greatly affect global trade. About one-third of all world seaborne dry bulk commodity movements consists of these imports. For some individual commodities, the proportion is higher. A prominent example is iron ore, by far the largest component, now exceeding one billion tonnes annually, which comprise over two-thirds of world iron ore trade.

What are the prospects for Chinese imports in the year ahead? Some signs point to continued overall growth in 2017, but possible restraining influences are clearly visible. The outcome partly depends upon government policy measures (especially affecting coal consumption and imports), changes in which are not always easy to predict and may alter expectations.

Slowing economic activity is having a moderating impact on consumption of commodities, affecting import demand. Chinese government policy aims to limit economic output growth, while rebalancing the economy. Consumer spending and services have been accorded higher priority, shifting the emphasis away from capital investment spending and manufacturing.

Further gradual economic output deceleration is expected by most forecasters. The latest (mid-January) International Monetary Fund predictions point to 6.5% growth in China’s GDP in 2017, compared with 6.7% in 2016. When growth seemed to be slipping too rapidly early last year, more stimulus measures were implemented to provide support, a pattern which could be seen again.

RESURGING IRON ORE IMPORTS

Optimism about the upwards trend in China’s iron ore imports faded after an abrupt slowdown in 2015, when there was just a 2% increase. At the beginning of last year, the annual growth rate seemed likely to be marginal, with a possibility of a small reduction occurring.

The outcome was much brighter. Iron ore imports of in 2016 expanded by 71mt (million tonnes) or over 7%, compared with the previous year, exceeding the symbolic one billion tonnes level to reach 1,024mt. But it is not entirely clear whether this robust growth is sustainable through the twelve months ahead: some of the positive influences seem unlikely to remain as strong as seen recently.

Although steel production increased by only 1% last year, further replacement of high cost domestic iron ore supplies with imports boosted foreign buying and stockbuilding also contributed. In 2017 some signs suggest reduced steel output, amid diminishing domestic and export demand. Replacement of domestic iron ore with imports may not continue at the same pace, while additions to inventories may cease.

REBOUNDING COAL IMPORTS

Following a continued but steeper 30% decline in coal imports into China during 2015, pessimism about future volumes was widespread. Another sizeable reduction seemed predictable but, instead, the 2016 total (including low-quality lignite) increased strongly by 51mt or 25%, reaching 256mt. Nevertheless, prospects for a continuation of this revival are surrounded by great uncertainty.

Government intentions affecting domestic coal production and consumption are likely to have a big influence on foreign purchases. Coal mining and its relationship with imports was affected by policy changes last year. There was renewed emphasis on cleaner sources of energy — hydro electricity, gas, nuclear power and renewables, especially wind turbine power — intended to drastically cut air pollution.

China’s domestic coal production was down by 9% last year, to 3.64 billion tonnes, resulting from the government’s efforts to cut capacity and output. But shortages ensued, especially in the first half, raising prices and encouraging import purchases. Some measures cutting output were temporarily reversed later.

LOWER GRAIN, HIGHER SOYA PURCHASES

Grain imports arranged by Chinese buyers were lower in 2016, while the upwards trend in soyabeans imports continued. The volume of wheat, corn, barley, sorghum and other grains imported fell steeply by 11mt (37%) to 18mt. Soyabeans totalled 83mt, a 2% increase.

The soyabeans trend remains strong because meal and oil consumption in livestock feed and food manufacturing is still rising, and domestic soyabeans output supplies only a limited part of the market. Consequently imports in 2017 may increase again.

Imports of wheat and coarse grains are surrounded by greater uncertainty and currently, further weakening is foreseeable.
Good domestic harvests in China over the past few years have resulted in stocks, particularly of corn, becoming excessive. The government’s policy is to reduce these, implying adverse effects on grain imports.

MIXED CHANGES IN OTHER COMMODITIES

Other dry bulk commodity imports into China, a broad category estimated to total over 250mt last year, consists of forest products, steel products, fertilizers, various ores and minerals and some agricultural bulks such as sugar. In such a varied category, shaped by many factors, changes are often very mixed in magnitude and direction.

Among the larger elements, bauxite/alumina imports totalled 55mt in 2016, a 9% reduction. Nickel ore volumes were also down by a similar 9%, at 32mt. By contrast, key items of forest products (woodpulp and woodchips) increased by 10% to 33mt and steel products saw a 5% rise to just over 17mt.