Eleven years ago in 2003, when China opened its doors and the steel boom got underway, the shipping community was suddenly presented with an ‘Aladdin’s Cave’ of cargo. Unlike Japan and Korea, China had not locked in the fleet of ships it would need. So the escalating imports of iron ore soon turned into a gold mine for shipping. With so much cargo and a limited fleet of ships, Capesize rates surged.

Unexpected Riches

Shipping has always done well out of “miracle” economies, but the Chinese growth surge which followed was special. In the next decade, Chinese industry, especially steelmaking, grew faster than anyone could possibly have predicted. In 2003 the Chinese government thought steel production would reach 300mt in 2010. Actual output in 2010 was 627mt. The effect on trade was profound. China’s seaborne imports quadrupled, reaching 2 billion tonnes in 2013, by far the most any country has ever imported in a year. The freight boom this triggered between 2003 and 2008 was also arguably the best in the industry’s history.

Even after the Credit Crisis in 2008, China kept expanding, with just one short-lived wobble in 2009. This growth helped cushion shipowners from a 1980s style meltdown that might otherwise have hit the bulk and container markets.

Unavoidable Evolution

But in the real world, economies move on and there are many signs that change is underway. China is a very big country, and some provinces are still poor, but across the economy activity is slowing. Industrial production growth fell to 6.9% year-on-year in August and the dollar value of export trade, which for many years grew at about 20-30% pa, only managed 8% in 2013.

The real change this year has been in steel and construction. Official statistics suggest that floor space under construction is down 17% year-on-year and house completion is down about 30% this year. Some Beijing analysts are predicting much lower house building over the next two years. Although iron ore imports are up by 18% year-on-year, steel production is only growing at 5%. Not a good omen. Meanwhile steel prices have slumped another 5-10% and steel exports are up 37%. All signs of market weakness.

Value-Added Production

Of course these trends could be cyclical, but China is a very different economy from 10 years ago. A new generation has grown up with computers, smartphones, cars, fashion and confidence. Environmental concern, which triggered the impending ban on high sulphur coal imports, illustrates the way these changes can trickle through into trade.

New Trend, Old Story

So there you have it. China’s sprint for growth is easing off and it is projected that imports will grow 5% this year. This is way below the 10-20% pa of the boom years. It happened to Japan and Europe in the 1960s and to South Korea in the 1980s and 1990s. So does that mean ‘Aladdin’s Cave’ is empty? Such a big cave with so many dark corners, makes it hard to say, but it’s a serious issue for investors. Have a nice day.