The Dry Bulk Weekly Review in Shipfix Data
Mixed signals from Shipfix’s forward-looking cargo order data suggest the Chinese economy will continue to face challenges during the early parts of the year. Low demand for seaborne imports of coal and mixed data indicate headwinds. However, in contrast, bauxite imports remain robust and point towards some positive developments.
Data for Chinese Copper Demand Suggests Early Growth Will Be Subdued
Last week’s announcement that China’s central bank is lowering the required reserve ratio for the country’s commercial banks from next month highlighted that Beijing remains concerned over sluggish growth rates. Also, the manner in which it was presented, i.e. with extensive advance warning, suggested that the Chinese leadership is growing increasingly worried over developments. While last year’s economic growth was broadly in line with the official target of somewhat more than five per cent, the level was nevertheless conservative by Chinese standards.
According to data released in the middle of January, China’s industrial production expanded by 6.8 per cent in December compared to a year earlier, somewhat more than expected. Last month’s reading followed a stronger-than-expected output in November as well. However, base effects played a role as China’s extensive anti-COVID measures were being dismantled during the final months of 2022. As the Chinese New Year approaches, markets will, in line with tradition, have to wait for the joint reading for January and February, which is due for release towards the end of March. Hence, in the meantime, alternative indicators for the state of the Chinese economy will have to be employed.
Copper is often seen as a bellwether for economic and industrial activities, given its central role in modern manufacturing. While copper prices have been moving higher over the past week, they remain broadly in line with the levels recorded at the end of last year. A stronger dollar has contributed to the decline, but uncertainty over Chinese demand has also been a factor.
Cargo order volumes for copper discharging in Chinese ports are on course for a substantial month-on-month increase, with the aggregate for the month so far well above the reading for the whole of December. Also, assuming a high degree of linearity for the remainder of the month, cargo order volumes would top the volumes recorded in January last year by more than 40 per cent. However, bearing in mind that the situation is nearly the reverse of the previous month, the linear projection for the month looks less impressive. The aggregate for the past two months could be on track to match what was recorded during the same period last year. Hence, the data for the red metal suggest that Chinese growth during the first months of the year will be subdued.
Seasonal Weakness in Demand for Seaborne Transportation of Coal Adding Pressure on Market Prices
Apart from a few hiccups along the way, coal prices have been trending lower for nearly a year and a half. Compared to a year ago, the coal futures for delivery in the Australian port of Newcastle are trading more than 50 per cent lower. For the contracts for delivery in North-West Europe, the decline has been somewhat less dramatic at around 40 per cent. Behind the extensive drops lies a combination of lower demand, in the wake of falling natural gas prices and weaker economic growth, and an improving global supply situation.
The first few weeks of the year have seen the Newcastle futures for delivery in March declining by around ten per cent. The falling prices during January were preceded by a significant drop in global demand for seaborne transportation of coal during December. The average aggregate weekly volumes fell by around 40 per cent between November and December. While seasonal weakness contributed to the soft demand, the new year has seen cargo order volumes remaining low for two of the world’s largest importers of the fossil fuel.
Cargo order volumes for coal discharging in China and India have seen a slow start to the year. While there have been some signs of a pick-up in demand during the first half of January, the past two weeks have seen a retreat. Hence, given the forward-looking nature of the data set, coal prices should continue to face pressure in the near term.
Robust Cargo Order Volumes for Bauxite Provide Some Hope for the Chinese Economy
If the cargo order data for copper and coal suggest that the outlook for the Chinese economy remains sobre, the seaborne spot trade in bauxite heading for the country’s port tells a different story. At the same time as aluminium prices have remained range bound, albeit volatile, over the past few months, demand for seaborne transportation of the vital ingredient for aluminium production to China has been trending higher since the middle of last year.
While demand for transportation of bauxite exports from Guinea has played a significant part in the robust numbers seen in recent months, rising shipments from the rest of the world have also had a significant impact. After receding somewhat in December amid rising tensions in the Red Sea, spot demand for shipments from Türkiye has recovered during the past month and contributed to the month-on-month increase in aggregate volumes. Additionally, the spot market has seen increasing volumes for the trade from Brazil.
The robust demand for bauxite among Chinese buyers suggests that there could be some positive developments for the world’s second-largest economy in due course amid the increasing amount of support. Also, the trade could lend support to freight rates. The rising trade from West Africa will primarily benefit the larger vessels, while the shipments from the rest of the world will contribute to higher demand in the mid-sized segments.
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