For many years, China has been (and continues to be) vital to the dry bulk industry and its continued long-term recovery. China consumes the three major bulks – coal, iron ore and grain – in pretty vast quantities. Thus, fluctuations in Chinese supply and demand have significant impacts on the wider dry bulk industry.
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Dry bulk shipping has shown signs of recovery towards the end of this year, following rising demand. In a recent outlook on the industry, international shipping association BIMCO reported freight rates have seen small increases towards the end of 2017, and noted handymax/supramax/ultramax fleet owners and operators (who fixed their ships after 21 August) even saw return on investment. The shipping association noted that this ongoing recovery is “fragile” since although demand has increased so has supply – therefore it is only a “slight fundamental market improvement”. It noted the total tonne-miles adjusted demand growth rate is forecast to be 3.9% in 2017 – the highest rate in three years.
At the core of the demand is, of course, China. BIMCO noted Chinese imports of seaborne coal during the first nine months of 2017 increased by 18.7% and iron ore imports for the first eight months increased by 6.9%, year-on-year. It even set a record in September, when Chinese iron ore imports surpassed 100 million t.
Looking ahead, shipping consultancy Drewry expects dry bulk shipping charter rates to improve from 2Q18 as a result of strengthening Asian iron ore demand, according to the latest edition of the Dry Bulk Forecaster. While it notes demand for iron ore from China will be impacted in the short term due to the government’s intention to limit steel production between November 2017 and March 2018, it holds its outlook that, for the medium and long term, Chinese steel production will increase (following the relaxation of these temporary steel production limits) and therefore lead to iron ore demand increases. This is strengthened by the fact that the government intends to close inefficient and highly polluting mills, and will focus on new efficient mills producing high-quality steel – which will require imported high-grade ore. Drewry notes China’s Belt and Road Initiative will also drive dry bulk shipping in the future – with plans for ambitious infrastructure development leading to increased activity for dry bulk shipping.
But when looking to the future, China is not the only focus, as Asia more broadly is projected to be the source of demand and long-term development. Both BIMCO and Drewry highlight this. BIMCO points out that, ever since the global financial crisis in 2008, the one growth area for the dry bulk market has been Asia. For example, it indicates that, as well as China, India, South Korea and Malaysia are also worth taking note of for thermal coal.
Zooming in on one of the up-and-coming key countries for dry bulk, this issue’s regional report focuses on India. On pages 12 – 15, Jeffrey Landsberg, Managing Director of Commodore Research & Consultancy, details the potential dominance India will have in driving growth in the dry bulk industry over the long term. He outlines that the country’s population and infrastructure are poised for significant growth and expansion, and this could provide many opportunities for the dry bulk shipping market.
Could India’s path to continued industrialisation and full country power follow China’s or exceed it?