The Dry Bulk Weekly Review in Shipfix Data
Depressed cargo order volumes for steel loading in Chinese ports over the past two weeks suggest that recent robust export data will not see a repeat in the coming month. Shipfix’s forward-looking data sets also indicate that soft Chinese demand will weigh on the Newcastle coal futures. Additionally, the potential for seasonal weakness suggests that Chinese buyers will not provide support for grain and oilseed prices.
Cargo Order Volumes Point Towards Lower Chinese Steel Exports
The April iron ore futures dropped below 100 dollars per tonne at the end of last week, the first time they have done so since the latter parts of August. At the same time, the front-month Chinese steel rebar futures are trading at levels last seen in June last year, after a thirteen per cent drop since the beginning of the year. The iron ore and steel futures have been negatively affected by the headwinds facing the Chinese property sector, and last week’s news that prices for new and existing homes have kept falling will likely put further pressure on prices.
According to the China Iron and Steel Association, the country’s steel exports rose by nearly a third during the first two months of the year compared to the same period last year. At the same time, the country’s iron ore imports rose by around eight per cent. Low domestic steel demand and low prices have contributed to the increasing exports. At the same time, low profit margins for the country’s steel mills have seen a rise in portside iron ore inventories.
Weekly cargo order volumes for steel products loading in Chinese ports have come under significant pressure recently. The past week recorded a marginal rebound after dropping to nearly one million tonnes the week before last. Still, weekly demand levels for seaborne transportation of steel are well below the readings seen a year ago. Hence, it looks unlikely that the recent robust data for Chinese steel exports will see a repeat in the coming months. As a result, weak steel exports, sluggish domestic demand, and high inventories could weigh on iron ore imports in the near future.
Seasonal Patterns Suggest Weaker Chinese Demand Will Weigh on Grain and Oilseed Prices
Grains and oilseed have faced significant headwinds since the beginning of the year as a bullish global supply outlook has weighed on prices. While corn and soybeans have recovered some of the losses recently amid downgrades to expected harvest sizes, the May futures for the two crops listed on the CBOT are currently trading around ten per cent below the levels at the end of December. However, while the wheat contracts have experienced some volatility in recent weeks, expectations of abundant global supplies have seen them shedding around seventeen per cent year-to-date.
While the supply side has received much of the attention for the price developments for grains and oilseeds, the lack of demand growth from Chinese buyers is also likely to have contributed. Aggregate cargo order volumes for agricultural commodities discharging in Chinese ports since the beginning of January are broadly in line with what was recorded a year ago. Hence, stable Chinese demand has yet to absorb solid supplies of grains and oilseeds. The past week saw a minor increase in demand for seaborne transportation of agricultural commodities bound for China. However, should recent years’ seasonal patterns see a repeat, the rebound is likely to be relatively short-lived. As a result, Chinese demand is unlikely to provide much support for grain and oilseed prices in the near term.
Weaker Chinese Demand for Seaborne Transportation of Coal Signals Headwinds for the Newcastle Futures
The benchmark futures for the Asian coal trade have faced significant downward pressure over the past fortnight. The Newcastle contracts for delivery next month have shed around ten per cent over the period. Still, despite the recent decline, the contracts are trading broadly in line with the levels seen at the end of last year as robust Chinese demand supported prices throughout February. However, since then, traders have become increasingly concerned that the Chinese market may become oversupplied amid robust domestic output, which may limit the country’s imports and keep global markets well supplied.
Cargo order volumes for Chinese seaborne coal imports trended higher for much of the year’s first two months. While dipping around the Chinese Lunar New Year, volumes topped eleven million tonnes in late February. However, during the past month, the Chinese demand for maritime transportation of the dirtiest of fossil fuels has retreated sharply. In the past two weeks, volumes have fallen below five million tonnes. Compared to a year ago, last week’s volumes represented a fall of around 60 per cent. Hence, unless Chinese cargo order volumes recover swiftly, the Newcastle futures will continue to face significant headwinds.
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