The Dry Bulk Weekly Review in Shipfix Data
Shipfix's forward-looking cargo order data sets indicate that Chinese steel exports will end the year on a soft note, with the weakness extending into next year. However, steel exports have come under pressure globally, with Brazil and Vietnam contributing to last month’s decline. The softer demand for exports will translate into lower discharged volumes globally in the coming weeks and months, with no major importer escaping the downward pressure.
Declining Cargo Order Volumes Indicate a Soft End to the Year for Chinese Steel Exports
Chinese steel exports look set for a bumper year, with data for the first ten months of the year reaching a nine-year high. Still, there are suggestions that the feat will not be repeated in the coming year, as tariffs and other anti-dumping measures around the world may limit the attractiveness of Chinese steel.
After a surge during September and early October, Chinese steel rebar prices have faced headwinds over the past two months. The January steel rebar futures listed on the Shanghai Futures Exchange ended last week at around eight per cent lower than the high recorded in early October. While the Chinese leadership has announced many stimulus programmes to support the economy in the recent past, last week’s weaker-than-expected import data suggest that domestic demand remains sluggish. Hence, reports of increasing Chinese steel production have contributed to lower prices.
Weekly cargo order volumes for steel loading in Chinese ports have faced significant pressure over the past two months, suggesting that the year may end on a soft note for exports. As manufacturing and construction activities around the world wind down as the end of the year approaches, a decline in demand for seaborne transportation of Chinese steel was expected. However, the drop in demand has been significant since the end of September.
The average cargo order volume for the past ten weeks was 40 per cent lower than during the preceding ten weeks. Given the data set's forward-looking properties, the drop suggests that the exports during December will be low. The low cargo order volumes during the past week indicate that the weakness may carry into the new year. Hence, with exports facing headwinds, Chinese steel rebar prices will likely remain under pressure.
The Decline in Steel Exports Extends Beyond China
As discussed above, Chinese steel exports look set to come under pressure as cargo order volumes for the trade have faced significant downward pressure in recent weeks. This development has been partly fuelled by a seasonal rebound in Chinese domestic demand earlier in the autumn.
The decline in demand for seaborne transportation of steel from China has contributed to global cargo order volumes trending lower since the middle of September. Still, softer Chinese steel exports are not the only reason for the lower volumes. Over the past month, demand for seaborne transportation of Vietnam and Brazil steel exports has also contributed to the lower global aggregate.
Compared to a year ago, the global aggregate cargo order volumes recorded in November were around a third lower. While there has been a limited rebound in recent weeks, the positive momentum appears to have run out of steam, with the global aggregate retreating last week. Hence, the total demand for December may struggle to match November’s, as further weakness can be expected with Christmas and New Year rapidly approaching. The development could offset some of the bullish sentiments for iron ore that the announcement of additional stimulus for the Chinese economy provided.
The World’s Major Steel Importers Look Set for Lower Inflows in the New Year
With global cargo order volumes for steel exports under pressure in recent weeks, less of the metal will be discharged in ports across the world in the coming months. The global aggregate for November was nearly 34 per cent lower than during the same period last year and around seven per cent below the total for October.
Given the lead time between cargo ordering and physical discharge at the destination, the soft cargo ordering activities at the end of November and the first half of December will see lower volumes discharging worldwide in the new year. Among the world’s leading importers, no region will escape the headwinds. While demand for discharge in Europe has only faced limited headwinds of approximately six per cent, the decline for cargoes bound for the US, the Far East, and Southeast Asia has been significantly more pronounced. For the US, the aggregate for the past two weeks has seen a 43 per cent drop year-on-year, while the combination of the two Asian regions has fallen by 59 per cent.
An earlier minor rebound in domestic Chinese demand has contributed to lower global cargo order volumes. However, given steel's central role in manufacturing and construction, the current soft demand for seaborne imports suggests that the global economy faces mounting headwinds. Beyond lower economic growth, this development could signal headwinds for iron ore prices, at least until more clarity over the latest batch of Chinese financial support emerges.
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