BIMCO: Capesize Ships in Pain as Chinese Iron Ore Imports Drop

Dry bulk shipping industry is feeling the impact of a continuing decrease in Chinese imports of iron ore as the country’s crude steel production keeps growing, according to BIMCO.

Chinese steel production grew by a massive 12.6 million tonnes (+9.2%) in the first two months on 2019 as estimated by China Iron and Steel Association (CISA). During the same period, Chinese imports of the paramount steel production ingredient, iron ore, fell by 5.6%, or 10.3 million tonnes.

“For two decades the dry bulk shipping industry have relied on growth in Chinese steel production to continuously spur seaborne imports of high-quality iron ore – from Australia and Brazil. That trend has now vanished and the Capesize ships operating on the spot market feel the pain. Growth in volumes are gone and iron ore is increasingly being shipped on long term contracts,” Peter Sand, BIMCO’s Chief Shipping Analyst, said.

“The 10.3 million tonnes fall in Chinese iron ore imports is equal to 57 Capesize loads (180,000 tonnes) fewer for the first two months of 2019 only. If that’s the pace we will see for the full year, we are in for a tough time.”

Changes to the Chinese steel-making industry have pushed a move towards increased use of scrap metal, away from using imported and domestically mined iron ore blend into a solid amount of coking coal.

China’s seaborne imports of coking coal fell by 11.2% (4.9 million tonnes) in 2018, with the slide continuing into 2019. Chinese coking coal imports are down by 16% in Jan-Feb 2019 from the same period in 2018.

India has now surpassed Japan as the world’s second largest steel producer, having produced only 12% of what China did in Jan-Feb 2019. Indian crude steel production grew by only 22,000 tonnes (+0.1%) in Jan-Feb 2019, BIMCO cited the World Steel Association. In 2018, China produced 52% of all crude steel.

Putting the significance of China further into context, global crude steel production excluding China, fell by 1.5% (-2.2 million tonnes) in the first two months of 2019.

As for crude steel production outside of Asia, only the Middle East (+0.5 million tonnes), Africa (+0.1 mt) and North America (+0.5 mt) staged increased production.

In Brazil, the deadly collapse of the Dam I of the Córrego de Feijão mine in January 2019 disrupted Brazilian iron ore export terminals and mining operations due to a wide range of issues that are unlikely to go away soon.

Less than two months after the Dam I collapse, Australian exports were disrupted by the tropical cyclone Veronica. Ports on the Pilbara coast in Western Australia were shut down in late March.

“Looking forward, iron ore will no longer drive the Capesize market up as it has been doing for two decades. Freight rates will become more negatively impacted by fleet growth than before, as demand is now falling, for the all-important Capesize commodity.”

“If iron ore demand from China stalls or outright falls going forward – then the fleet size must stall or fall – simply to keep the market balance from getting worse,” Sand concluded.