A sharp reduction in China’s dry bulk commodity imports growth rate occurred last year, after a lengthy period of rapid expansion. Following 13–14% annual increases for several years, the 2014 rise was very limited at under 2%. This dramatic change could indicate a new era beginning, including much slower advances than seen in the recent past.
Following astonishing growth over the past decade, imports into China now comprise about one-third of world seaborne dry bulk cargo trade. Consequently prospects for China’s commodity purchases are a key aspect of the outlook for global movements. Further additional volumes are still likely, but the pace of this trend may differ from its recent evolution.
Commodity consumption in China will be adversely affected by the slackening rate of growth in economic activity which is forecast to continue for some time. Specific factors affecting individual commodities are expected to modify the effects on imports, however. GDP growth last year, at 7.4%, was lower than seen in the preceding twelve months, emphasizing a decelerating pattern.
According to a recent (late January) IMF updated forecast, China could see a slackening to 6.8% GDP growth in 2015, with perhaps another half percentage point deceleration next year. This trend reflects government policy aiming to rebalance the economy away from capital investment spending and exports, towards more consumer spending.
UPWARDS IRON ORE IMPORTS
Iron ore comprises the dominant part, about 60% of China’s vast dry bulk imports. In 2014 the iron ore total rose by 113mt (million tonnes) to 933mt, a 14% increase from the previous year, as shown by the table. This volume, including some land movements but mostly seaborne, comprises two-thirds of global iron ore trade.
In preceding years, the rising trend accompanied growing steel production at Chinese mills. Last year, crude steel output was only marginally (by 1%) higher at 823mt, although that volume may be revised upwards eventually. A more specific indicator, pig iron production at blast furnace mills, was up by an even smaller margin at 712mt. These figures corroborate evidence that iron ore imports gained market share from Chinese domestic ore output.
Some forecasters are predicting that in 2015 another large expansion of iron ore imports into China will occur, despite expectations of little or no growth in steel production as a result of slack demand. Lower international ore prices, reflecting foreign suppliers ramping up their output, have resulted in enhanced import competitiveness. As a result, more high-cost Chinese domestic material may be displaced by foreign purchases.
DOWNWARDS COAL IMPORTS
Following a strongly rising trend over several years, China’s coal
imports abruptly declined in 2014. The annual total last year, including lignite, fell by almost 36mt or 11%, to 292mt. Coking coal for the steel industry was 17% lower, at 62mt, while steam coal, mainly used in power stations, was down by 14% at 166mt. Low-quality lignite, also used by power stations, was 6% higher at 64mt.
This downturn was caused by a number of factors. Electricity generation at coal-fired power plants was adversely affected by much higher hydro-electricity production. The government’s increasing emphasis on using cleaner fuels also contributed, together with measures to discourage coal imports.
During the year ahead it seems possible that coal imports into China will fall again although, alternatively, some analysts foresee a slight recovery. Potential negative influences are very prominent. Measures to reduce air pollution from coal-fired power stations is one key aspect, together with attempts to reduce imports of low-quality coal. In these circumstances, price-competitiveness of foreign supplies is not the main determining factor.
RISING GRAIN AND SOYA PURCHASES
Cereals and oilseeds imports by Chinese buyers continued to strengthen in total last year. This trend has been assisted by expanding consumption amid a growing population, improving living standards and changing diets for many people. While domestic output of these agricultural products is massive, a large volume of imports is needed.
The biggest imports element in this category is comprised of soyabeans. As shown in the table, these were 8mt or 13% higher in 2014, raising the annual figure above 71mt. Imports of the main grains — wheat, corn, barley and oats — were almost flat at about 11mt.
Domestic grain production in China has risen in recent years but the mid-2014 harvest was almost unchanged at 349mt. Together with ample stocks, this output has limited demand for imported supplies. Domestic soyabeans output supports a much smaller part of that market segment and, amid vigorously expanding usage of soyameal and oil, the result is growing imports.
VARYING MINOR BULKS EVOLUTION
Among China’s dry bulk imports many others are prominent and, as a group, form a very substantial quantity. But two of the largest individual commodities declined steeply last year. Nickel ore (used in the steel industry) was down by 24mt (33%) to 48mt, while the aluminium raw material bauxite/alumina was 34mt (45%) lower at 42mt.
Prospects for this very diverse sector are mixed. During 2015 imports of some commodities may increase. There may be partial rebounds in bauxite/alumina and nickel ore, after destocking in the past twelve months following previous stockbuilding in advance of Indonesia’s minerals export controls. Conversely, decreases are quite possible elsewhere. Richard Scott