08-03-2021 Dry bulk: Chinese steel prices, coal supply worries and Australian aversion could benefit bulkers, DNB Markets
According to industry sources, firm Chinese steel prices has seen domestic steel producers favour iron ore with higher Fe content to increase their output. A local trader stated that “although overall trading of iron ore has been flat recently, trading activity for higher grade iron ore fines is relatively lively”, suggesting that iron ore with Fe content above 60% is gaining market share. In our view, the news should be seen as a positive given that China’s domestic supply of iron ore is characterized by poorer quality than producers further away, such as Brazil.
Simultaneously, market reports suggest that China’s main economic planning agency (NDRC) held yet another meeting to discuss measures for ensuring the country’s coal supply ahead of the summer peak. Seasonally, China’s coal consumption tends to pick up pace during the summer months, as thermal coal is used to generate electricity for air-conditioning. With the winter’s coal shortage fresh in mind, Chinese authorities are eager to avoid another period of rising domestic coal prices and have been urged by local utility companies to provide a more predictable import quota system. On the flip side, NDRC are cited wishing local coal producers to raise output and for higher power generation from non-coal sources.
In continuation of the above, China seems firm in its aversion of Australian coal volumes and are as a consequence hiking up imports from US, South Africa and Colombia – with the former exporting nearly 0.3m tonnes of coking coal to China during February 2021, which is up from nearly zero in October when the ban on Australian imports where imposed. Though still reliant on growing imports from its traditional suppliers outside of Australia, China’s marginal imports are being sourced from further away – hence boosting tonne-miles and potentially yielding a small relative advantage to mid-sized bulkers as alternate trading patterns could favour these vessel classes.