China’s slowing property sector will hurt dry bulk demand, according to Maritime Strategies International. The London-based consultancy said that a 15% fall in steel demand from construction could lead to a 50m tonnes drop in steel use. That translates to 80m tonnes iron ore and 50m tonnes less coking coal required. Iron ore and therefore capesizes had the biggest scope to be impacted, with “significant downside risk to imports” if domestic production is supported, MSI’s senior dry bulk analyst Alex Stuart-Grumbar said on a webinar, as China accounts for over 70% of global iron ore seaborne imports.
MSI expects iron ore imports will fall by 26m tonnes, or 2.3%, this year, while coking coal has already dropped by 39% so far in 2021. Its base case scenario for capesize rates in 2022 show an average of $25,200 per day, slightly lower than the current Forward Freight Agreements contract. The trickle effect to the sub-capesize segment will also be felt through substitution. More than 2,000 panamax voyages for coal trades could be affected, equivalent to 18% of total panamax demand.
While the outlook for steel remains uncertain and is based on various outcomes, MSI expects steel imports to come under pressure, while exports could continue to be strong based on rising demand in the region. The Chinese government has imposed curbs on steel output in a bid to cut emissions, meaning that as time goes on, steel consumption and therefore demand for commodities such as iron ore and coking coal will increasingly be affected by a slowing property sector.
Other minor bulks will also be affected. Cement imports have dropped 50% to 4.9m tonnes in the last three months of this year versus the same period in 2020, following a surge through to May. “If import demand stays at these levels, there would be 300-400 fewer handysize/supra voyages per year,” Mr Stuart-Grumbar said. A similar scenario was likely to play out for logs, he added, as about 30% of log imports go into property construction with about 1,000 handysizes discharging the commodity in China per year.
The country, the world’s second-largest economy, accounts for 25% of all bulker discharges, according to MSI, and the 12% increase last year has been the cause for the build-up in congestion through 2021 given weather and coronavirus disruptions delaying unloading and loading. The logjams, which have tied up tonnage for longer, had resulted in the highest freight rates in more than a decade, but if fewer vessels get absorbed with a property market decline, that would be a negative for dry bulk, Mr Stuart-Grumbar said. An unwinding of inefficiencies in the fleet would result in weaker earnings even as cargo growth outweighed vessel supply next year, he added. The property issue has come to the fore given widespread news of debt woes, with Evergrande, one of China’s developers, expected to default on its $300bn loans or be bailed out by the state.