China Flash #2

A rebound in steel and iron ore prices combined with tight supply of domestic coal has dominated the dry bulk market in China recently – but it does not come as a total surprise. As the Government is cutting steel production more non-competitive steel mills are closed which support the steel price. It is further said that steel traders experience increased domestic demand due to a strong property market.

COAL supplies continue to be tight as several domestic mines have yet to resume production after the holiday and political sessions in Beijing. This has also supported the domestic coal price. Overseas miners hope Chinas utilities will turn to more imported materials but such buying interest may not amount to much in the short term as overall coal burns are still seasonally low. Small and medium sized mines are likely to resume operation soon which may release some of the pressure on local supplies. In addition can an increase in hydropower production in the South further dampen coal shipping demand?

IRON ORE AND STEEL markets have seen the strong trend continue but calmed down last week. It is a general view that the steel price has increased too fast recently and that further price development will flatten out. Despite this we have seen quite a few steel shipments been cancelled due to the recent price fluctuations. Some sellers are reluctant to sell their products in the hope of higher prices. This may lead to a change in sentiment in an otherwise strong steel export market. Last week we also saw a notable increase in activity for iron ore shipments from Iran to China as they were selling at a discount compared to some of the other export nations.

The GRAIN market was rather active last week for the Chinese grain players. However despite the recent improvement to freight rates, forward pessimism remains prominent. The recent improvement is viewed more as a correction and driven by a volatile bunker market. We understand China this year has bought more than 1 million tons of corn from Black Sea, primarily from Ukraine. With most of these cargoes being shipped within February and March it has also supported the front haul rates. Going forward all eyes are on the large domestic stocks of corn which are estimated to account for more than half of global stocks. The huge build up of these stocks is due to a domestic price policy which is aimed at encouraging domestic production. However, many end users have instead turned to cheaper import of alternative feed grains which is now becoming less and more restricted. Soybeans however remain the major source of imported grains and volumes are expected to continue growing.

Otherwise it is high on the political agenda to keep Chinese consumers spending money at home instead of overseas. As a potential solution Premier Li recently introduced “the spirit of craftsmanship” in his Government Work Report, saying the country will encourage enterprises to make more high-quality products. Apparently it was the first time craftsmanship was mentioned in such a Government report.

For reading on Klaveness corporate values including craftsmanship: http://klaveness.com/about-us/#vision-values

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