Rising dry bulk imports into China

China seems set to substantially increase its imports of dry bulk commodities during 2013, compared with last year. This view is widely held, but differences of opinion are evident about how large a rise is likely. Already there has been much expansion during the first half of the current year, however, and prospects for the remaining months look promising.

Doubts about the progress of China’s economy, and effects on industries which import dry bulk commodities, have been an underlying reason for uncertainty. Earlier this year, anxiety retreated when signs emerged of a probable modest upturn in the 2013 GDP growth rate, following last year’s further slowing to 7.8%.Then it became apparent that this anticipated improvement was not happening, and sentiment began to recede again.

Although GDP growth in China slowed to 7.7% in this year’s first quarter and 7.5% in the second quarter, some recent indicators have been a little more encouraging. There are tentative signs pointing to no further deterioration and quite possibly some pick up ahead. A government ‘mini stimulus’ of measures designed to boost the economy may be assisting.

The IMF’s latest (early July) forecast points to China’s economy growing by 7.8% in 2013, an unchanged pace, implying an improvement in the second half. Previously a slightly higher annual rate had been estimated by the IMF and other forecasters. Evidence of strengthening manufacturing output has emerged recently, a positive sign for dry bulk import demand.

EXPANDING IRON ORE

Iron ore imports, the largest component of China’s commodity purchases from foreign suppliers, rose strongly in the first seven months of this year. The total for this vast trade movement reached 457.2mt (million tonnes), averaging just over 65mt monthly, and 8% higher than seen in the same period a year earlier. Seaborne trade comprises the majority, with only a small proportion contributed by overland movements.

Growing steel output provided most of the impetus. Crude steel production at Chinese mills was 7% higher at 455.8mt in the January–July period, according to World Steel Association statistics. This figure may be revised upwards when more complete information is available. Expectations of a slackening trend have not proved accurate, despite signs indicating excess stocks building up. Iron ore stocks appeared to be relatively low in the past six months, benefiting import demand. Also, foreign suppliers competed strongly for additional volumes with domestic mines, which nevertheless apparently were able to continue raising their ore output. Over the remaining months of this year and into 2014, strengthening construction and manufacturing activity could assist.

INCREASING COAL

Imports of coal into China increased rapidly in this year’s first half. Reports indicate that the total, including low-grade lignite, rose by 13% to reach 158.6mt, averaging over 26mt monthly. Some land movements are included in these figures. About four-fifths of the total is steam coal mainly used in power stations, while the remainder comprises coking coal for steel mills.

Competition with domestic producers is a feature of the Chinese coal market as well. Domestic mines are the dominant suppliers, limiting imports to a small but strongly expanding part. In the January–June 2013 period, domestic coal output actually declined by 4% compared with last year’s same months, to 1.79 billion, an unusual change disrupting an upwards trend.This weakening was attributed to lower prices, falling below production costs.

Coal imports are difficult to predict because of their role as the marginal supply source, and because of competition between this fuel and other energy sources such as varying hydro-electricity availability. Greater uncertainty follows the Chinese government’s recent attempts to control and reduce low-grade coal imports. Nevertheless, an upwards trend seems quite likely to persist.

IMPROVING GRAIN AND SOYA

China’s demand for both imported soyabeans and grain is forecast to expand greatly in the period ahead. Soyabeans, the largest element, could be around one-sixth higher, while the much smaller volume of wheat plus corn and other coarse grains could increase by almost 80%.

According to recent US Dept of Agriculture calculations, soyabeans imports into China may be flat at 59mt in the 2012/13 marketing year ending this month. A strong rise is expected to follow, raising the total by 10mt or 17% to 69mt in 2013/14 starting October. Strengthening soyameal and oil usage, lower stocks, and no increase in the domestic soyabeans harvest could benefit imports.

Despite expected additional domestic Chinese grain production in the mid-2013 harvest, a very sharp imports expansion is predicted. International Grains Council estimates point to foreign purchases in the current 2013/14 crop year ending June rising by 7mt, to almost 17mt.Tight domestic markets, especially for some grades, is foreseen.

UPWARDS MINOR BULKS

Other dry bulk commodities are also prominent. In 2012 China imported over 190mt of minor bulk cargoes, most of which was seaborne trade. Together, these imports — including bauxite/alumina, nickel and manganese ores, steel products and woodpulp — have exhibited a rapid upwards trend which could continue this year.

Some estimates suggest that China’s imports of nickel ore, amounting to 65mt last year after remarkable growth, may be much higher in 2013, reflecting increased usage in stainless steel production. Conversely, foreign purchases of steel products seem likely to be flat or lower, continuing the downwards trend seen in the past few years.