A dramatic change in China’s dry bulk commodity imports trend has unfolded over the past two years. After more than a decade of very strong expansion, mostly double-digit annual percentage increases, 2014 saw much slower 2% overall growth. This sharp deceleration was followed, in 2015, by an actual reduction estimated at 2%. Currently, there are few signs of a rebound in the next twelve months.
Weakness in China’s imports is having a huge impact on global seaborne dry bulk trade. Although there are some bright spots among other commodity importers around the world, these positive changes are offsetting only a limited part of the faltering China trend.
Slowing growth in economic activity is one general explanation for the softening import demand. Reflecting Chinese government policy choices, an accompanying extended process of placing greater emphasis on consumer spending and services, and less on investment spending and manufacturing, is also instrumental. Several more specific factors affecting individual commodities are having an impact as well.
Among forecasters, economic growth is widely expected to slacken further over the years ahead. The latest (mid February) forecast by the OECD organization suggests that GDP increases in China will continue decelerating from 6.9% last year, to 6.5% in 2016 and 6.2% next year. According to some alternative calculations, the real pace may be rather less healthy than these figures suggest.
SLOWING IRON ORE IMPORTS
The consistent pattern of huge annual rises in iron ore imports, seen in most years over a long period, abruptly faltered in 2015 when only a limited increase occurred. The significance is large, because iron ore comprises about three-fifths of China’s entire dry bulk commodity imports, and also because iron ore imports into China comprise over two-thirds of global iron ore trade.
During last year as a whole China imported 953mt (million tonnes) of iron ore, a 20mt or 2% increase compared with the previous twelve months. This positive outcome contrasted with a 2% decline in crude steel production to 804mt, accompanied by a decline closer to 4% in pig iron output from blast furnace mills. Despite success in raising steel exports, lower domestic demand for steel weakened production.
It seems clear that high-priced domestic iron ore, produced at mines in China, is still being progressively displaced by lower- priced, better quality foreign supplies. But this trend has become less prominent than seen earlier, and prospects for a continuation have become less predictable. Moreover, the outlook for steel production remains negative, with estimates pointing to another sizeable decline during 2016.
FALLING COAL IMPORTS
Following a large reduction in 2014, Chinese coal importers dramatically cut their purchases last year, when the total fell by 87mt or 30%, from 292mt in the previous twelve months to 204mt (including low-grade lignite), based on China Customs figures. Both steam and coking coal imports were much lower.
The downturn in steel production was one influence, while changes in the power generation sector contributed greatly. Amid a slowdown in electricity demand and output growth, a decline in coal-fired power generation occurred. Increasing emphasis on other energy sources — hydro-electricity, gas, nuclear and renewables, especially wind turbine power — reflects government policy designed to cut pollution.
Steps to control and reduce coal-burning in industry and in power generation have become a priority because of the severe air pollution experienced in many cities and urban areas. Domestic production of coal as well as imports are affected. Measures have been introduced which prohibit or diminish coal usage and imports, particularly the lower grades which cause most environmental damage. These developments are likely to continue having an adverse impact on foreign coal purchases.
STRONG GRAIN AND SOYA IMPORTS
Imports of agricultural bulk commodities into China maintained a strong upwards trend last year. Much larger volumes of cereals and oilseeds were required. The dominant element is soyabeans, which continued rising, while grain (mainly wheat, corn, sorghum and barley) was sharply higher.
Official figures show soyabeans imports in 2015 rising by 10mt or 14%, reaching 82mt. Chinese domestic consumption of soyameal in livestock feed, and soyaoil used in food manufacturing and home cooking, is still increasing, while domestic production of soyabeans supplies only a limited part of the market. Growth in usage and imports is expected to continue.
Imports of grain, a smaller category, surged last year, despite another good domestic harvest which is the main market supply source. As a result inventories rose rapidly, especially corn, and the government is now attempting to reduce these. Consequently the import trend recently has begun to weaken, and it seems possible that 2016 will see a reduction.
MIXED PATTERN OF OTHER IMPORTS
Almost one-fifth of dry bulk commodity imports into China is comprised of a variety of other cargoes, comprising minerals, agribulks and fertilizers, steel products, forest products and semi- manufactures. A mixed pattern of changes was seen last year, with some sizeable increases accompanied by decreases elsewhere.
The aluminium industry raw material bauxite, and semi- processed form alumina, saw a recovery in 2015 after plummeting in the previous year. This category increased by 19mt (45%), reaching 61mt. By contrast nickel ore, which also had fallen steeply in 2014, continued downwards last year, declining by 13mt (26%), to 35mt.