The Dry Bulk Weekly Review in Shipfix Data
Shipfix’s forward-looking data sets indicate that Chinese steel exports will remain elevated despite seasonal headwinds. The development will continue to weigh on cargo order volumes for Indian steel exports, forcing a greater focus on the domestic market for the country’s producers. At the same time, one of the most vocal supporters of tariffs on Chinese steel exports, the US, is importing only limited quantities from the other side of the Pacific.
Cargo Order Volumes for Chinese Steel Exports Remain Elevated
Despite significant losses last Monday, iron ore staged a limited recovery during the past week, with the August futures listed on the SGX recording a modest weekly gain of 1.5 per cent. Still, the contracts are trading at levels last seen in early April and have lost around twelve per cent over the past month. Concerns over the Chinese demand outlook amid a lopsided economic recovery and an earlier build up in inventories have contributed to the negative development for the iron ore futures. Despite the recent headwinds, the contracts ended the first half of the year nearly twelve per cent higher than at the same point in 2023.
Chinese steel exports have recently been a way for the country’s mills to shift excess production amid sluggish domestic demand. However, the shipments to foreign shores have faced increasing resistance from governments around the world as the competition with local production has been seen as unfair in many cases. As a result, the exports have raised the subject of tariffs and other trade barriers.
Cargo order volumes for steel loading in Chinese ports began to trend lower in February, potentially due to shifting perceptions and policies abroad. However, after a weak start, weekly volumes recovered in May. Still, the positive momentum proved short-lived, and volumes over the past few weeks have faced headwinds amid a seasonal decline in demand as summer holidays in the Northern Hemisphere disrupt the trade. Despite the weaker demand for seaborne transportation of Chinese steel, the aggregate cargo order volumes for the whole of June were around five per cent higher than during the same period last year.
The continued strength of the weekly cargo order volumes is likely to prove to be a double-edged sword for the markets. On the one hand, it will contribute to lower inventory levels at the Chinese steel mills, supporting continued robust seaborne flows of iron ore to China. On the other hand, higher exports could signal that domestic demand remains sluggish. In the latter case, it could lead to declining iron ore imports, as Chinese authorities have not in the past been adverse to limiting production to control pollution levels. Chinese tax policies also changed a few years ago to discourage steel exports and limit the industry’s emission levels. Hence, on balance, continued robust Chinese steel exports may prove bearish for iron ore in the short to medium terms.
Cheap Chinese Steel Weighing on Cargo Order Volumes for Indian Exports
The increase in Chinese exports of cheap steel has resulted in substantial headwinds for the Indian steel industry. While the country is a net importer of steel, it is also a significant exporter of the material. Still, the price advantage of Chinese steel has led to increasing Indian imports from the country, while exports have suffered amid mounting global competition from mills in China.
Cargo order volumes for steel loading in Indian ports have come under significant pressure in recent months. While the year started strongly, in line with standard seasonal patterns, the downward trend has been steeper than usual. Average weekly volumes during June dropped to around 275,000 tonnes, compared to 560,000 tonnes a year ago. The 50 per cent decline in cargo order volumes indicates that Indian steel exports will not recover in the short term, and the country’s steel mills may have to focus on the domestic market.
Brazil and not China Affected by Lower US Seaborne Imports of Steel
As Chinese steel exports rose earlier in the year amid sluggish domestic demand, the US was among the more vocal actors calling for tariffs and other measures to control what was perceived as unfair competition and dumping. The reaction could be seen as excessive, as Chinese steel accounts for only a small part of US imports. Hence, the response should be seen in a geopolitical context rather than for bilateral trade, as the world’s largest economy generally sources foreign steel closer to home. Canada, Mexico and Brazil are the top suppliers of foreign-produced steel for the US economy. However, among the three countries, only the shipments from Brazil are seaborne.
Since the beginning of 2023, Brazilian shipments have accounted for, on average, 36 per cent of weekly cargo order volumes for steel due for discharge in US ports. During the same period, the equivalent measure for imports from China was a meagre 2.5 per cent. However, seaborne US steel imports have faced seasonal pressures over the past month, with recent weekly cargo order volumes around half of those recorded in May. Mounting headwinds for the US economy may also have augmented the seasonal weakness. While US demand for maritime transportation of steel from Brazil has stabilised in recent weeks, the exporter has nevertheless borne the brunt of the trade’s decline. As for cargo order volumes for Chinese steel bound for the US, the past week saw an aggregate of 60,000 tonnes after a month of no activities.
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