The Dry Bulk Weekly Review in Shipfix Data
Shipfix’s forward-looking cargo order data is currently signalling that Chinese demand for copper and steel may be recovering, suggesting that manufacturing and construction activities in the country could be on the rise. However, total dry bulk cargo volumes tell a different story amid falling demand in recent weeks. The conflicting signals highlight the challenges ahead for the world’s second-largest economy.
Higher Demand for Seaborne Transportation Could Signal Higher Prices and a Recovery for the Chinese Economy
After reaching the lowest point for the year in early October, the three-month copper futures listed on the LME have been trending higher in volatile conditions over the past month. The limited recovery has gathered momentum in the past week as investors have reassessed their demand projections amid renewed efforts by the Chinese government to support growth rates in the world’s second-largest economy. While the past week’s mostly disappointing PMI data provided some headwinds for the red metal, they nevertheless highlighted the need for swift action from the Chinese government. As a result, they contributed to expectations of higher demand in the coming months.
The higher copper prices have coincided with a recovery in global demand for seaborne transportation of the commodity. After dropping below a quarter of a million tonnes during the second week of October, global aggregate volumes have recovered in recent weeks. A surge in demand for cargoes to be discharged in China over the past two weeks has contributed to the robust volumes. The total for the past week fell just short of 400,000 tonnes but was nearly at par with the preceding week. Hence, the continued strong appetite for copper should contribute to further price gains.
The recent rebound in demand for seaborne transportation of copper has seen average cargo sizes trending higher. However, it is more a question of mean reversion, with the typical cargo sizes returning to around 15,000 tonnes. Hence, the increasing ordering activities will provide some support for freight rates in the smallest segments.
Declining Cargo Order Volumes for Chinese Steel Exports Indicating Higher Domestic Demand
Despite a suggestion that an increase in Chinese copper demand could herald a rebound in growth, the tug-of-war between China bears and bulls remains firmly in place. The past week’s weak PMI data for the country’s manufacturing sector provided the pessimists with additional fuel for their arguments. Still, the cargo order data for Chinese steel exports adds another potential early indicator that the Chinese economy is responding to earlier announcements of additional stimulus.
The demand for seaborne transportation of Chinese steel products has been on a downward trend for much of the past month. The forward-looking nature of the data set suggests that Chinese steel exports will come under some pressure in the near term. The development indicates that a rebound in domestic demand reduces the need for exporting excess production, providing another leading indicator for a pick-up in economic activities.
After a strong rebound following the Chinese public holidays at the end of September and the beginning of October, cargo order volumes for steel exports came under pressure during the past two weeks. Last week, cargo order volumes dropped below one million tonnes, and at the same time, Chinese steel rebar prices reached the highest level since the middle of September amid robust demand and low inventories. The two developments provide some support for the notion that Chinese industrial output may recover amid more stimulus for the economy.
A continued drop in Chinese demand for seaborne transportation of steel exports amid stronger domestic demand will put some pressure on freight rates. While the average cargo sizes have been trending higher in the past few weeks, it is primarily a case of a return to the long-term mean of around 25,000 tonnes. Hence, any pressure on demand will mainly affect the smaller segments.
Headline Cargo Order Volumes Point Towards Continued Challenging Conditions for the Chinese Economy
While the cargo order data for Chinese copper imports and steel exports may provide leading indicators for the fortunes of the world’s second-largest economy, a bigger picture view of the Chinese seaborne trade in dry bulk commodities provides a more sober outlook.
The aggregate weekly cargo order volumes for Chinese imports and exports of dry bulk commodities have been on a downward trajectory for the best part of the past month. Demand for seaborne transportation for discharge in Chinese ports saw a solid rebound at the beginning of October, as activities resumed following a week-long public holiday in China. However, since then, ordering activities have faltered, with the total for the past week dropping below 24 million tonnes. Also, if one ignores the developments around the recent holidays, it is possible to argue that demand peaked in the middle of September. Hence, given the forward-looking of Shipfix’s cargo order data, Chinese imports of dry bulk commodities may prove disappointing during the year’s final months.
While the imports dwarf the weekly order volumes for Chinese exports of dry bulk commodities, the latter nevertheless display a similar pattern for the past couple of months. Demand for seaborne transportation of Chinese dry bulk exports picked up in early October following the extended holidays, but, as in the case of imports, the recovery lacked momentum, and weekly order volumes have declined by around thirty per cent since the middle of the past month.
The conflicting signals, with copper and steel on one side and aggregate demand on the other, will keep the tug-of-war between China bears and bulls in place, with neither group capable of delivering a knockout blow in the short term. While individual commodities may reap the benefits of increasing demand, the overall decline in demand for seaborne transportation of commodities to and from China could put some pressure on dry bulk spot freight rates. At this point, the Supramaxes look set to be the vessels that will face the stiffest headwinds should the drop in demand prove lengthy.
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