China’s iron ore imports under the microscope

China’s iron ore imports under the microscope

Yesterday’s lead story on Splash has caused significant reaction from China dry bulk analysts.

Peter Sand, chief shipping analyst at global shipowning body BIMCO, caused a stir with the publication of a report on Wednesday entitled It’s the steel production, stupid!, in which he noted how scrap metal in China was being used more and more instead of iron ore imports, potentially to the long term detriment of capesize earnings.

“China’s increased use of scrap metal for its production of crude steel is fundamentally critical to the dry bulk shipping industry,” the BIMCO report noted.

“For two decades the dry bulk shipping industry have relied on growth in Chinese steel production to continuously spur seaborne imports of high-quality iron ore – from Australia and Brazil. That trend has now vanished and the capesize ships operating on the spot market feel the pain. Growth in volumes are gone and iron ore is increasingly being shipped on long term contracts,” Sand stated.

BIMCO stated yesterday it was putting special focus this year on the decoupling between Chinese steel production and iron ore imports.

Commenting on the report, Ralph Leszczynski, global head of research at Banchero Costa, conceded that cape owners can no longer expect  the growth rates in Chinese iron ore consumption seen between 2005 and 2015.

“China is probably very near its peak steel consumption level,” Leszczynski said, noting that historically, steel production and consumption in a country peaks at a relatively early stage in a country’s economic development, normally at a time when a country focuses on building its infrastructure and heavy industry, and before it shifts to a more services-driven economy.

Leszczynski agreed China was set to use greater volumes of scrap metal in its steelmaking.

“Scrap is becoming increasingly available within China, so it will lead to a limited but steady slowdown in iron ore demand,” the Banchero Costa analyst said.

Banchero Costa is forecasting the 2019 total iron ore trade to be roughly in line with the total in 2018 despite the disastrous start to the year for many of the world’s big iron ore miners.

More bullish on dry bulk prospects was Joakim Hannisdahl, head of research at Cleaves Securities, who told Splash current dry bulk supply/demand fundamentals can withstand slowing Chinese iron ore demand.

“Maturing Chinese steel production is a cause for concern, but with the low orderbook and only 2% annual net dry bulk shipping supply growth, very limited demand is needed to achieve the kind of slow and steady improvements we expect in the coming years,” Hannisdahl said. Even if Chinese iron ore imports were to stagnate, Cleaves maintains demand for other dry bulk commodities will grow.

 

 

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.

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