China’s upwards trend in bulk imports continues

Many signs emerging recently have bolstered predictions of further substantial growth in China’s dry bulk commodity imports during 2013. Although there are still differences of opinion about the extent of positive changes foreseeable, the seaborne imports trend direction seems clearer. Much of the uncertainty which had arisen previously, when the Chinese economy was slowing markedly, has receded.

The likely progress of China’s commodity purchases from foreign suppliers has become a crucial aspect of the outlook for world trade. Dry bulk cargo imports into China now comprise about 33% of all global seaborne trade in this sector.

Moreover, while prospects for growth in other major importer segments — such as Europe and Japan — is limited, there remains considerable potential over the years ahead for continuing expansion in China.

During last year’s final quarter, the Chinese economy’s slowing trend was reversed, when GDP growth picked up. Although annual growth in 2012 as a whole was below the previous year’s rate, at 7.8%, the end-year improvement added to other indications that an upturn is under way. The latest (January) IMF forecast suggests an acceleration to 8.2% in 2013. Government measures stimulating activity seem to be making an effective contribution.

IRON ORE GROWTH

By far the biggest single part of China’s imports, iron ore, performed strongly last year, as shown in the table. The total was over 57mt (million tonnes) higher, an increase of 8% compared with the preceding twelve months, raising the 2012 volume to 743.6mt, which includes some land movements but is mostly seaborne. This performance was especially significant, because the total comprises almost two-thirds of global iron ore trade.

Steel production at Chinese mills expanded at a much less rapid pace. Crude steel output was 3% higher at 716.5mt. Pig iron production at blast furnace mills using iron ore grew by 2%, reaching 657.9mt. These provisional figures compiled by the World Steel Association probably will be revised upwards when more accurate data is available.

Imported iron ore competed strongly with domestic ore production in the past twelve months and increased its market share. Similar circumstances in 2013 could result in iron ore imports again rising at a fairly rapid rate, possibly of about 6% or more according to several estimates, exceeding steel output growth. A sustained moderate upwards trend in steel production is expected to result from strengthening construction and manufacturing activity.

COAL EXPANSION

In 2012 China’s imports surged again to become the largest single element of world coal trade, exceeding the massive volumes imported by both Europe and Japan. The Chinese total increased by 52mt or 28%, reaching 235.1mt. Almost four-fifths was steam coal destined for power stations and other industries such as

cement, with the remainder comprising coking coal for steel industry usage.

Despite rising production from the vast domestic coal mining industry, imports competed successfully last year. Seaborne imports into China benefited from a lower proportion obtained by overland transport from Mongolia, a key supplier of coking coal grades especially. Coal imports are greatly affected by price differentials between domestic and international supplies, and in the past twelve months the delivered costs of foreign supplies proved attractive.

Over the year ahead another large rise in imports could be seen. Recent forecasts pointing to a 10% or greater increase seem quite realistic, amid higher coal usage in the main consuming industries. Although domestic coal output may continue growing, the Chinese market probably will remain tight as the economy picks up, resulting in additional foreign purchases.

SOYA INCREASE

After a downturn in 2011, soyabeans imports, another large trade into China, regained momentum last year with a sizeable increase of 5.8mt or 11%. This additional volume raised the annual 2012 total to 58.4mt. Lower domestic soyabeans production, coupled with rising consumption of soyameal and oil, explains the positive change. Potential for further growth is apparent.

Soyabeans crops produced by Chinese farmers comprise a relatively small part of the market. The past two harvests were smaller than the preceding volume. In 2012, a 13% reduction to 12.6mt was seen. Meanwhile, domestic usage of meal by livestock feed manufacturers has grown very strongly in recent years, including a 9% rise in the marketing period ending September 2012, based on US Dept of Agriculture estimates. Soyaoil consumption grew by 7%.

Imports of another agricultural commodity, wheat and coarse grains, are fairly small because China is essentially self-sufficient. Another good domestic harvest in the summer and autumn of 2012 has reduced the need for foreign supplies. In the marketing year ending September 2012 imports rose to 10.9mt, but a reduction to 8mt is envisaged by USDA in the current period.

MINOR BULKS MIXED

Many other dry bulks are featured among China’s imports.These commodities include bauxite/alumina, nickel and manganese ores, steel products and woodpulp. Although overall there has been continuing expansion, changes in the volumes last year were not wholly positive.

One of the strongest performances in this group was exhibited by nickel ore, used in stainless steel production. Imports into China during 2012 reportedly rose by 35%, reaching 65mt. By contrast, imports of steel products were 14% lower at 14mt, and bauxite/alumina purchases apparently also declined sharply. Given the diverse nature of this group, future import demand changes could vary greatly.