Signs of weakness in China’s dry bulk commodity imports are very prominent this year. Growth abruptly slackened last year to 2%, compared with the preceding twelve months, following much higher expansion rates previously. It now seems possible that the 2015 total will show an actual reduction, unless there is a solid pick-up over the remaining months.
The changing pattern is having a profound effect on global seaborne dry bulk trade. Some spectacular rises in imports into China over the past decade have boosted the annual total from about one-eighth of world volume, to over one-third. Consequently the present slackening, when coupled with limited growth in import volumes elsewhere, is being closely watched.
Part of the explanation is slowing growth in economic activity. Although much more specific factors affect individual commodities, a decelerating Chinese economy is having a broadly negative impact. Slacker demand for the products of industries which rely heavily on imported supplies of raw materials and fuels is apparent.
A revised assessment published recently (mid-August) by the IMF suggested that GDP growth in 2015 could slow to 6.8%, from 7.4% last year, followed by a further slowdown to 6.3% next year. The transition to a ‘new normal’ and sustainable pace in China is set to continue, as intended by the government. One desired outcome is to rebalance the economy, reducing over-dependence on capital investment and exports, and increasing the emphasis on consumer spending.
IRON ORE IMPORTS FALTERING
After the strong rise in 2014, another large increase in iron ore imports into China this year seemed likely, but confidence in that outcome has faded. These ore volumes comprise about two-fifths of the country’s entire dry bulk imports, and also comprise over two-thirds of global iron ore trade, so their significance is enormous.
During the first seven months of 2015, China’s iron ore imports totalled 539mt (million tonnes), a minimal reduction of under 1% compared with last year’s same period. The slight weakening occurred amid lower steel production, which was down by 2% to 476mt, although the steel estimate may be revised upwards when more complete information becomes available.
Little or no potential for steel output to rise this year has been visible for some time, given the clear signs of weakness in consuming industries, especially construction activity. However, despite the resulting constraints on iron ore consumption, analysts expected imports to grow further, perhaps quite rapidly. Much lower prices for foreign ore supplies, caused by greatly enlarged availability, were expected to continue displacing higher priced Chinese domestic supplies.
COAL IMPORTS DECLINING
Imports of coal into China remained on a downwards trend during recent months. In the January–July 2015 period total imports, including low-grade lignite, reportedly declined by a massive 62mt or 34%. From 183mt in the same period last year, the volume was down to 121mt.
Reduced steel production is one influence, refected in lower coking coal demand. But a much bigger factor is the remarkable changes taking place in the power generation sector, especially affecting coal-fired electricity production. Accompanying a slowdown in overall energy usage and power demand, caused by the economy’s deceleration, a fundamental shift towards cleaner energy sources is occurring.
China’s steam coal consumption and imports have been weakened by rising hydro-electricity generation capacity and output, aided by abundant rainfall. Increased emphasis on gas, nuclear power and renewable energy sources has been noticeable as well, amid the government’s efforts to reduce both air pollution in cities and other environmental damage associated with coal burning. Moreover, tougher controls on the usage and importing of low-quality coal grades have been introduced.
GRAIN AND SOYA IMPORTS BUOYANT
Contrasting with foreign purchases of dry bulk minerals, China’s import demand for agricultural commodities remains well supported, with clear potential for further growth. Cereals and oilseed imports strengthened again last year and seem likely to maintain an upwards trend in 2015.
Imports of soyabeans by Chinese buyers, the largest part of this sector, are forecast by the US Dept of Agriculture to increase strongly by 9% in the 2014/15 trade year ending this month, reaching 77mt. A smaller 3% rise is tentatively predicted for the following 2015/16 year. Imports of wheat and coarse grains in the period now ending are estimated at over 23mt, a 20% increase, and these are expected to stay at around that volume in the next twelve months.
Expanding soya products (meal and oil) consumption is the main influence driving soyabeans imports higher. Domestic production of soyabeans in China has not risen in recent years. While grain harvests have increased, consumption growth patterns were sufficient to underpin larger foreign purchases. Currently, a key features is much larger sorghum purchases for livestock feed.
MINOR BULK PATTERNS VARY
Numerous other cargoes form part of China’s dry bulk commodity imports and, as a group, the overall volumes are substantial. Two of the largest components are nickel ore, used in stainless steel production, and bauxite together with the processed form alumina, used in aluminium production.
Following last year’s sharp falls in both nickel ore and bauxite/alumina imports, partial revivals during 2015 may be seen. The outlook for a range of commodities including other ‘minor’ ores and minerals, steel products, forest products, scrap iron, petcoke and fertilizers is mixed. Richard Scott