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China’s Imports of Commodities Drive a Boom in Dry-Bulk Shipping

5
May
Posted by Francisca Macias
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hina’s surging imports of metals, grain and other commodities are providing a boost to a bulk-shipping sector at the center of global industrial production.

Daily freight rates for capesize ships, the largest bulk carriers, jumped to an 18-month high this week at around $35,000 and the Baltic Dry Index, which tracks the cost of moving commodities by sea, pushed to a 10-year high of 2,808 on Monday.

“It’s been a spectacular period, which is very much off-season,” said Peter Sand, chief shipping analyst at maritime trading body Bimco. “Normally demand falls by around 9% from the fourth into the first quarter. We haven’t seen such demand in a very long time.”

The rebound follows a steep decline early last year as factory production crumbled at the start of the pandemic. China now is stepping up its investment in industrial production to fuel economic growth, and consumer demand in Western economies is growing stronger.

In the first quarter, China iron ore and coal imports were up 7.9% and 9%, respectively, from a year ago, Bimco said.

China is the world’s biggest commodity importer, making up roughly 45% of maritime’s dry-bulk market, and shipping executives say the run looks set to last into the summer.

“China and other economies that import dry bulk are strengthening fast,” said Hamish Norton, president of Greece-based, New York-listed Star Bulk Carriers Corp. , which operates

128 vessels. “Iron, coal, grains, everything moves well at the same time. There is no area of slack. I’m pretty optimistic for an extended period of margin strength.”

Supply-chain disruptions from the pandemic also have helped push more goods to ocean transport as importers try to get around backups and blockages.

Seaborne coal volumes into China, for instance, have been boosted since last year because trucks hauling the mineral from Mongolia can’t cross the Chinese border because of Covid-19 restrictions.

 

Metallurgical coal is needed to produce iron ore and brokers said they expect huge shipments of China-destined coal from Indonesia, Russia and South Africa this year along with a gradual normalization of imports from Australia.

Australian coal cargoes have been blocked at Chinese ports over the past year after a diplomatic dispute between Canberra and Beijing over the latter’s handling of the pandemic.

Corn is also in high demand. Prices climbed above $6.5 a bushel last week, the highest level in nearly eight years, after the Beijing office of U.S. Agriculture Department said it expects China to import a record 28 million metric tons of the grain this year. China is stepping up its grain imports as the country seeks to replenish its pig farms after an outbreak of deadly swine fever.

Mr. Norton said he also expects Indian coal imports to stay strong despite a rapid surge in coronavirus cases that is forcing city lockdowns, and he is projecting robust soybean volumes on ships from the U.S., Brazil and Argentina to Japan and across Asia.

He said smaller bulk ships are even being chartered to move containers because of capacity strains and backups at ports in handling container ships, which carry the largest share of the world’s manufactured and consumer goods.

Daily freight rates for dry-bulk carriers are among the most volatile in the shipping sector. Spot rates often swing widely on factors ranging from mining and crop outputs to tariffs and weather patterns.

Mr. Sand said it remains unclear whether the surge will outlast the volatility of the current market.

“At the end of the day, there are still too many ships in the water and the global fleet grew 4% last year with very little demand,” he said. “Rates are good, but not spectacular, so enjoy it while it lasts, because the market is going to cool down at some point this year.”

 

Source: wsj.com/articles

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