The Chinese economy is a key driver for the bulk trades. For North Americans, China’s consumption of raw materials and agricultural products has been an import export mainstay. But the heady days of China’s economic growth in the high teens may be over…at least for now. So in this year of the dragging dragon are their seeds of recovery? By George Lauriat, AJOT When it comes to dry bulk, as China goes, so goes the market. Not a real revelation, as in 2010 China eclipsed Japan as the world’s second largest economy behind the US. China is also now the world’s largest exporter and second largest importer, again behind the US. For these reasons, a GDP that has averaged around 10% per annum for a decade allows the China Factor to frame virtually every global economic forecast. Since iron and steel products and steel making commodities account for nearly 50% of the global dry bulk shipping movements, China’s imports and exports are key contributors to the employment of dry bulk shipping. China is far and away the world’s largest producer of crude steel, accounting for a 45% market share. In 2011 China produced 695.5 million mt of crude steel, up 9% over 638.7 million in 2010. To put this in perspective, the EU27 together only combined to produce 177.4 million mt (see chart). The country’s share of iron imports is estimated to be more than 60% of the market, with Japan, a distant second with a 14 % share. In 2011, China imported 182.4 million tons of coal, making the country the world’s largest importer, eclipsing Japan at just over 175 million tons. In 2007, the China’s GDP grew by over 14%, but starting in late 2010 growth in China slowed. Economists are now forecasting a 2012 GDP growth of around 9% (8.9% in 4th quarter of 2011), which is enviable to every other major economy in the world, but down slightly compared to recent years. But Beijing, under the 12th Five Year Plan, is focusing its efforts on reigning in inflation, especially in respect to the urban housing boom, and addressing domestic economic issues. The nation’s leadership is less concerned about the country’s export sector, as witnessed by a rising Yuan, and more concerned about building a more balanced economy. At a time when the European, Japanese and US economies were (and are) flat, and the fear of financial collapse in Greece dimmed confidence in a quick recovery, the stage was being set for another collapse of the dry bulk market similar to 2008. In the second half of 2010, Chinese demand for commodities slowed, as did exports. Simultaneously, a flood of new dry bulk carrier capacity began entering the market, these events and the coming Chinese Year, aligned perfectly for another BDI nosedive. Even before the lights from the Chinese New Year fireworks extinguished ushering in the “Year of the Dragon,” the BDI (Baltic Dry Index) was well on its way to hitting a twenty-five year low at 647. Was it the China Factor that caused the BDI dive? Is there any hope of recovery in 2012? Boom, Bust and What? In the 4th quarter of 2008 the dry bulk market collapsed, falling from historic peaks to the bottom, only recently surpassed. On the 20th of May 20, 2008 the BDI was an astounding 11,793. In 2008, the world financial markets were already in crisis, yet the dry bulk market continued to soar. In November, the BDI free fall began, and December 5th it dropped like the proverbial stone to 663. A recovery of sorts ensued in 2009/2010, with the BDI hitting a high of 4,209 in May 2010 before again falling and hanging around 2,000 before the Dragon nosedive. With the new BDI bottom, comparisons with the initial 2008 collapse were inevitable. The trouble is that there is still a great deal of debate on exactly what precipitated the first collapse. The OECD (July of 2009) in their review of seaborne trade noted that after years of sustained growth, seaborne trade as measured in trillion ton-miles had suddenly leveled off (’08, 32.7 t/t-m; ’09, 32.6 t/t-m; and ’10, 33.3 t/t-m). Distances were shorter and demand clearly had fallen, es