China’s steel industry retools

By: | Issue #648 | at 08:00 AM | Channel(s): Maritime  Breakbulk  

China’s steel industry retools

There is no doubt China is key to the dry bulk sector. Reforms in steel making that began several years ago in China are now taking hold. But questions abound as to how the country’s steel industry restructuring will impact global dry bulk shipments.

China ore else what? When it comes to dry bulk demand forecasts, China’s always the key - and the key is made of steel.

Throughout the 1980s and into the 1990s, China’s economy annually posted double digit GDP growth (with some exaggeration in numbers) as China rode the “export model” to modernization. China’s industrial growth as transformation into the “world’s factory” was also the driver behind the rise in commodity movements, especially related to steel and steel products. Like the old adage a rising tide lifts all boats, the increase in commodity movements to China (and the export products created from those commodities) in turn has lifted the BDI, albeit from a very low starting point.

China is still the largest importer of iron ore and coal by a wide margin. For example, back in 2014, China imported a whopping 70% of the world’s iron ore and nearly 20% of the world’s coal. Even now there is a much closer correlation between the BDI and China’s imports than global GDP growth figures. Iron and steel remain the biggest market drivers.

Drewry, the London-based shipping research firm, wrote in the February edition of their Dry Bulk Forecaster, “Demand is projected to grow at a healthy pace of 3%...” but there are many ways this freight friendly forecast could get derailed, beginning with China.

The World Steel Association, better known as Worldsteel (a group representing 160 steel producers accounting for 85% of global production), wrote in their April appraisal, “We expect that Russia and Brazil will finally move out of their recessions. After the demonetization shock, the Indian economy is expected to resume growth.” “However, China, which accounts for 45% of global steel demand, is expected to return to a more subdued growth rate after its recent short uplift.”

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George Lauriat's avatar

American Journal of Transportation