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BIMCO: Chinese Steel Production Declines
Chinese steel production dropped by one million (1m) tons, a decline of 1.2%, compared to October last year. China produced 81m tonnes of crude steel in October 2019. This is the first decline in steel production year-on-year (y-o-y) since December 2017.
The story unfolds quite differently when looking at the
accumulated volumes of crude steel production. In total, China
has produced 829m tonnes of crude steel through the first 10
months of 2019, an increase of 6% when compared to the same
period last year.
In fact, total steel production, in accumulated volumes, has been
growing consistently since 2014, whereby steel production in 2019
is set to follow along the same trajectory with increased output
y-o-y.
Slowing Chinese GDP growth and heightened focus on environmental
pollution could partly have driven the recent slowdown of steel
production.
The Chinese steel production tends to taper off towards the end
of the year, whereby production in the final quarter is
consistently lower than in the third quarter. October's decreased
steel production might indicate that a similar slowdown could be
expected in the fourth quarter of this year.
What is in it for shipping?
In the past, increasing Chinese steel production drove up iron
ore imports, in turn, contributing to demand for dry bulk
shipping. However, as BIMCO has previously reported, the Chinese
steel mills are increasingly substituting iron ore with domestic
scrap steel, negatively impacting the demand for Capesize
transportation.
While the Chinese steel mills are producing record breaking amounts of crude steel, the growth rates for iron ore imports have remained in negative territory for the past 20 months. China has imported 877m tonnes of iron ore through the first 10 months of 2019, an impressive amount indeed, but still down 1.6% in accumulated volumes y-o-y. A slowdown of Chinese iron ore imports will surely negatively affect the Capesize segment.
Mounting pressure on Capesizes
The Capesize freight rates have remained profitable in the last
two quarters on the back of increased Brazilian iron ore exports.
However, in November 2019, the freight rates dipped towards
$20,000 per day and have since hovered around this level. Lower
iron ore imports in November and December might put the freight
rates under even greater pressure.
Nov 22, 2019
