Imports of dry bulk commodities into China, after impressive expansion in recent years, now comprise over one-third of all global trade in these cargoes. Further growth is unfolding this year, but it seems unlikely that the 2014 rise will be as strong as the 13–15% annual increases seen in the past three years. A sharp deceleration is more likely, despite surging iron ore volumes.
A vital support, for the upwards commodity imports trend, is the continuing strength of economic activity generally, and activity in industries requiring foreign supplies of raw materials, fuels, and other commodities, in particular. China’s economic growth, as a longer-term trend, is widely described as ‘slowing’, and fears have been expressed about a steeper slowdown, but a dramatic change does not seem imminent.
During the first half of 2014, gross domestic product (GDP) growth in China was slightly below the 7.7% annual rises seen in the past two years, at 7.4%. This recent development is broadly in line with expectations for the current year as a whole. The latest (end July) IMF forecasts for this year shows a 7.4% advance, followed by a further moderate slowing to 7.1% in 2015.
The relationship with commodity import demand is modified by other factors, some of which are specific to individual commodities. One influence is the progress of construction work and manufacturing industries. Infrastructure building and housing construction are particularly significant. A broad indicator is fixed investment spending, which the IMF expects to ease from over 9% rises annually in the past two years, to about 8% in 2014 and around 7% next year.
SURGING IRON ORE
Following last year’s 10% rise in China’s iron ore imports, to 820mt [million tonnes] (including some land movements but mostly seaborne), a similar jump is foreseen this year, as shown by the table. These volumes comprise well over half of China’s total dry bulk commodity imports, and also comprise more than two-thirds of world iron ore trade, so the impact of any changes is huge.
Increasing steel production underpins growth in raw materials consumption and imports. Crude steel production was 7% higher last year, at 779mt, and rose by a further 3% in first half 2014, compared with last year’s same period. But iron ore imports clearly are expanding faster, and in January–June this year the total was a remarkable 19% higher at 457mt.
This contrast partly reflects iron ore stocks changes. More significantly, with implications for the period ahead, is reduced international iron ore prices amid large new supplies becoming available in exporting countries. These supplies are proving advantageous for Chinese buyers, compared with high-cost and lower quality domestic iron ore production, which is being displaced.
Prospects for coal imports into China do not seem as favourable as those for iron ore. The outlook tends to be harder to assess, however, because the range of influences is complex, including steel and electricity demand, domestic coal production, competition from other energy sources, and environmental (and therefore political) factors.
Last year coal imports (including lignite) grew strongly by 13%, reaching 327mt and comprising a quarter of the global trade total in this commodity sector. As an element of the Chinese coal market such volumes are nevertheless relatively small: the vast production from domestic mines is the main source. Imports are greatly affected by changes in the relationship between delivered costs for domestic and foreign supplies.
In the first half of this year, overall coal imports into China apparently were up marginally (by 1%) at 160mt.This small change, although not necessarily a good indication of the outcome for the entire year, illustrates the restraints now visible. In particular, measures designed to control pollution, especially air pollution in major cities, by restricting coal usage are prominent.
DIVERGING GRAIN AND SOYA
Underlying support for China’s grain and soya imports is derived from the strong upwards trend in consumption. Although domestic grain harvests have also improved (but the relatively small soyabeans output has declined), the market for foreign supplies has widened.
Soyabeans imports are the largest component. After 9% growth last year to over 63mt, another substantial increase in 2014 is foreseen. While usage of soyabeans in livestock feed, and soyaoil in food manufacturing is still expanding rapidly, domestic soyabeans production has not risen but fallen. Consequently an increasing volume of imports is required.
Grain (wheat and coarse grains) is a smaller component which has greatly strengthened in the past twelve months, since last summer’s domestic grain harvest. Although this production was larger, shortages were experienced, boosting imports up to this summer, after which there is an expectation that ample supplies will cause imports to fall back again.
WEAKENING MINOR BULKS
Many other commodities are also prominent among China’s dry bulk imports. Among these, bauxite and the processed form alumina, and nickel ore have become the largest, accompanied by manganese ore, steel products, wood pulp and others. Both bauxite/alumina and nickel ore imports expanded to reach over 70mt last year.
Some of last year’s increase, however, was the result of a short- term distortion. In advance of Indonesia’s planned ban on unprocessed mineral exports, which began in January 2014, Chinese buyers greatly boosted bauxite and nickel ore. imports.These enlarged stocks currently are being consumed, reversing the impact on purchases.