Briskly reviving growth in key elements of China’s dry bulk commodity imports this year has been a big surprise. At the beginning of 2016 there were not many signs of a rebound; consequently, optimism was very limited. After last year’s 2% reduction in the overall total, further weakness seemed likely. But both iron ore and coal, by far the largest of the country’s dry bulk imports, have proved stronger than envisaged.
For global dry bulk commodity trade, large changes in the China volumes are hugely significant because this component comprises such a substantial part of the world total. Just under one-third of all world seaborne movements of these commodities consists of imports into China and, for some individual commodities, the proportion is much higher (iron ore is two-thirds of the world total, for example).
Despite the positive changes this year, slowing economic activity is having a restraining impact on consumption of commodities, affecting import demand. Chinese government policy aims to restrict economic output growth while rebalancing the economy. Consumer spending and services have been given a higher priority, shifting the emphasis away from investment spending and manufacturing.
Most forecasters expect a further gradual deceleration during 2016. The latest (mid-August) predictions by the International Monetary Fund point to 6.6% growth in China’s GDP in 2016, compared with 6.9% last year, followed by 6.2% in 2017. The expectation for this year is slightly higher than previous estimates, reflecting recent stimulus measures introduced by the government.
IRON ORE IMPORTS PICK UP
After the abrupt slowdown in China’s iron ore imports last year to only a 2% increase, optimism about the upwards trend faded. Estimates for 2016 suggested marginal growth or perhaps even a small reduction, amid steel production weakness and the apparent receding attractiveness of foreign ore supplies.
Yet events so far have proved much more positive. Provisional figures show that imports of iron ore, in this year’s first seven months, were 43mt (million tonnes) or 8% higher than the volume recorded in the same period a year ago, at 582mt. Although it seems unlikely that the annual total will see such a large percentage increase, a substantial rise from last year’s 953mt looks probable.
China’s steel output has been running at marginally lower levels (down by 1% in this year’s first half), adversely affecting raw materials consumption. Slacker domestic demand for steel reflects restrained activity in consuming industries.
But other factors have boosted iron ore import demand. Stockbuilding has contributed, while falling domestic iron ore production has enhanced the competitiveness of foreign supplies. In the second half of this year, beneficial influences may not be so prominent.
COAL IMPORTS REVIVE
A dramatic 30% fall in coal imports into China during 2015, to 204mt (including low-quality lignite) was widely expected to be followed by another large reduction. That expectation has been modified by statistics showing a January–July total of 129mt, just over 8mt or 7% higher than the amount seen in last year’s same period. However, it remains unclear whether there will be a sizeable increase in the annual volume.
One negative influence on coking coal usage has been the small decrease in steel production in recent months. Also, there is still great uncertainty about the strength of the steam coal requirements trend, the background for which remains predominantly unfavourable. But, at least temporarily, other influences have proved supportive for China’s purchases of foreign coal. Increasing emphasis on alternative, cleaner, sources of energy — hydro electricity, gas, nuclear power and renewables, especially wind turbine power — reflects government policy designed to drastically cut air pollution. Controlling coal-burning in electricity generation and other industries has become a priority. Production of coal from domestic mines in China is being reduced (first half 2016 output was 10% lower) as well, contributing to higher prices and the revival of imports recently.
GRAIN IMPORTS FALTER
Contrasting changes among imports of agricultural bulk commodities into China are unfolding. Last year, the upwards trend continued with large increases. A 14% rise in soyabeans imports to 82mt in 2015 was accompanied by a huge 73% increase in the grain volume, to 29mt, and a 15% advance in other agribulks to just under 29mt.
Soyabeans imports in 2016 may increase again. Consumption of soyameal in livestock feed, and soyaoil used in food manufacturing and home cooking is still growing while domestic soybeans output supplies only a small part of the market.
Much more uncertainty surrounds the outlook for China’s imports of wheat and coarse grains, which are expected to decline sharply. Good domestic harvests in China over the past few years have resulted in stocks, particularly of corn, becoming excessive and the government is attempting to reduce these, implying an adverse impact on grain imports.
OTHER COMMODITY IMPORTS
Imports of other dry bulks into China, comprising almost one- fifth of the total, include forest products, steel products, fertilisers, ores and minerals. In such a varied category, changes are often very mixed.
Bauxite is among the larger elements, totalling 56mt last year, a sharp recovery from the preceding year’s downturn. During the current year’s first half a strengthening trend was evident and further growth may be seen in 2016 as a whole, amid signs of rising aluminium capacity and output. Richard Scott