The Short-term Outlook for China in Shipfix Data
Shipfix’s forward-looking cargo order data provide somewhat mixed signals for the Chinese economy in the near term. On the one hand, aggregate demand for seaborne imports of dry bulk is showing continued signs of weakness, as is often the case during the second quarter. On the other hand, the diverging fortunes for the cargo order volumes of copper and steel indicate that the Chinese economy may enjoy a robust start to the second half of the year.
Dry Bulk Facing Seasonal Weakness in China
Iron ore continued to recover last week, with the June futures listed on the SGX briefly trading above 122 dollars per tonne, the highest since the middle of February. At the same time, copper reached new highs last week amid mounting fears over a global supply squeeze, with the three-month futures listed on the LME trading more than a quarter above the levels seen at the beginning of the year.
The recent bullish sentiments for some commodities were largely influenced by the growing optimism surrounding China's economic outlook. This shift in sentiment prompted traders to reevaluate their projections for the world’s second-largest economy, particularly in light of the stronger-than-expected industrial production in April and the subsequent recovery of industrial profits. The unveiling of a new support programme for China’s real estate sector further bolstered this optimism. This move was viewed as a potential catalyst for domestic demand, which has lagged behind the export-driven manufacturing sector, contributing to a lopsided Chinese economic recovery. However, given the mixed results of recent efforts to support the Chinese property sector, some caution may be warranted despite the ambitious nature of the latest measures.
The positive surprise for the Chinese manufacturing sector came amid a minor rebound in cargo ordering activities for dry bulk shipments bound for Chinese ports. The aggregate volumes in the spot market topped 131 million tonnes in April, an increase of more than five per cent compared to the month before. The data also represented an increase of more than 10 million tonnes compared to the same month last year. April’s modest recovery also ended two months of declining volumes. However, decelerating demand over the past few weeks suggests that the aggregate for May will fall well short of the reading from April. Despite the recent headwinds, there is still a reasonably good chance that demand will match what was recorded in May last year.
In absolute terms, the panamaxes, and to a lesser extent, the capesizes, were the primary beneficiaries of the rebound in demand during April. The former segment experienced higher demand from the coal trade, with cargo order volumes rising by 42 per cent month-on-month. However, the development appears to have been an outlier, with volumes this month likely to be more in line with the levels recorded in March.
High Demand for Seaborne Imports of Copper Supportive of Chinese Growth
While some weakness in demand for seaborne transportation of dry bulk commodities is evident, suggesting a slowdown ahead of the summer, developments are also underway that support a more positive narrative. Some cargo order data, which can be seen as leading indicators for economic activities, suggest that the world’s second-largest economy could experience some tailwinds in the coming months.
Copper demand is frequently quoted as a bellwether for economic activities, given the commodity’s central place in modern manufacturing. The ongoing energy transition has also supercharged the importance of the red metal for the global economy. In recent years, China has been the world’s preeminent buyer of copper, accounting for more than half of the global imports. Hence, the country’s imports can provide early indications of the economy's overall direction.
After trending lower throughout the first quarter of the year, cargo order volumes for copper to be discharged in Chinese ports have bounced back over the past two months. The aggregate for April topped 1.1 million tonnes, and the current month is on course for an even better reading. The time lag between ordering transportation and actual discharge suggests that Chinese copper imports will enjoy a robust start to the year's second half.
A Decline in Cargo Orders for Chinese Steel Indicates Improving Domestic Demand
Chinese steel exports have been the target of much consternation around the world in recent months. Sluggish domestic demand amid headwinds in the property sector forced the country’s steel producers to find alternative markets for their output overseas. The development led to renewed calls for countermeasures as Chinese steel put pressure on production elsewhere, contributing to the latest round of trade disruptions and tariffs.
After surging to 7.5 million tonnes in February, monthly cargo order volumes for steel products loading in Chinese ports have seen a steady decline. In April, the aggregate reached 6.5 million tonnes, one million tonnes short of the reading two months earlier. Still, the monthly demand remained elevated historically despite a nearly fifteen per cent decline compared to February. However, the current month is on course for a significant decrease in cargo order volumes. With only a few days left of the month, the aggregate for May is currently at around 3.7 million tonnes.
The downward trend for cargo order volumes for Chinese steel exports comes as steel prices in the country have staged a minor recovery. Since the beginning of April, the July steel rebar futures trading in Shanghai have gained around six per cent, potentially signalling rising domestic demand. However, despite an upward trend over the past two months, the contracts are trading around ten per cent below the levels at the beginning of the year.
Positive Short-term Outlook Amid Promising Signals From Copper and Steel
While cargo order volumes for Chinese dry bulk imports have been facing headwinds over the past month, it is part of a typical seasonal slowdown, with coal and agricultural commodities bearing the brunt of the softer demand. However, the data for Chinese copper imports and steel exports provide a contrasting narrative. Continued high demand for maritime transportation of copper combined with declining Chinese steel exports suggest that the outlook for the world’s second-largest economy looks favourable over the coming months. Hence, the country is increasingly likely to meet the year’s modest growth target, but the situation in the property sector remains a downside risk.
The current Chinese inventory situation for copper and iron ore may limit the upside for prices. However, a more solid Chinese economy should be beneficial for dry bulk freight rates, especially when cargo ordering activities are likely to see a seasonal recovery in the coming months. A rebound in line with recent years should see demand gaining momentum in the supramax and panamax segments.
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