Drewry: Rising Demand to Push China’s Chemical Freight Rates Up

China’s increasing domestic demand for chemical shipping is expected to strengthen coastal freight rates, according to shipping consultancy Drewry.

The demand has been boosted by the rapid expansion in Chinese base chemical production capacity. Some 55% of the new production capacity is located in East China, 23% in North China and 22% in South China.

Given that domestic supply of major chemical products is increasing, demand for vessels for the country’s domestic chemical trade is set to rise. Chinese coastal chemical trade increased by 7% in 2018 year on year, up from a 3% increase witnessed in 2017.

Meanwhile, as the Chinese government controls the development of the domestic chemical fleet, shipowners have to apply for licenses to operate within the country. In 2018, the government approved more additional licenses for the domestic fleet due to the surge in domestic demand. Nineteen new China-flagged chemical tankers were delivered in 2018, while three vessels were withdrawn from the chemical shipping market.

“Looking ahead we expect the Chinese-flagged chemical tanker fleet to expanding further to meet rising domestic shipments of base and semi-finished liquid chemicals,” Drewry said.

However, despite an increase in vessel supply, freight rates on China’s coastal routes will strengthen in 2019 and 2020 on the back of a stronger domestic demand and higher bunker cost.

China’s move to extended its 0.5% bunker fuel sulphur limit from the initially designated Emission Control Areas (ECAs) to the entire Chinese coastline from January 1, 2019 would also underpin the continued rise in domestic chemical tanker freight rates.