Dry Bulk largely depending on Chinese economy for its recovery

Posted by Daily Shipping Times on 18-05-2017        Tweet

SINGAPORE: It is hard to break the chain-links between the Dry bulk markets from the general health of China’s economy. In common with a lower China Purchasing Managers' Index (PMI) seen in April, the Baltic Dry Index (BDI) has stumbled to the current level of 1,000 from the 1,100 points last month.

Perhaps the BDI is just following its routine of recording higher rates during spring time before a summer lull with a later pick up again during fall, ahead of the winter restocking. This pattern has followed the construction activities of China with religious fervor, as China is the world’s bigger importer of raw materials, accounting nearly half of the global share.

However, it seems that the seasonal peak and lull periods are getting shorter and harder to predict. In April, China’s imports of iron ore went down by 3.7% month-on-month to a total of 83.27m tonnes, according to Thomson Reuters Supply Chain and Commodity Forecasts. Similarly, the Country’s imports of coal also fell in April to 18.95m tonnes, down 2.8% month-on-month due to cyclone-related logistics problems in Queensland, Australia.

Despite the slowing picture of seaborne trade, capesize FFA rates had hit $12,446 recently. Fortescue Metals Group’s CEO Nev Power seemed to share this market optimism as well and giving the Chinese economy a vote of confidence. In his opinion, China remains the key demand driver of iron ore for the long term, proven by its track record of average production of nearly 800m tonnes per year - or almost half the world’s steel output.

It seems freight rates will still bend to the mood of the Chinese economy – a reality not lost on the authorities. Having just pledged to keep economic growth at 6.5% this year, the Chinese still have a trump card up their sleeve in the shape of the ‘One Belt, One Road’ project.