Archives for posts with tag: Chinese steel production

Marvel’s Iron Man, as depicted in the 2008 film, features industrialist and genius inventor Tony Stark creating a powered suit, later perfecting its design and fighting evil. While it was a gold titanium alloy rather than iron which was used to make the futuristic armour, iron-based materials such as steel are used incredibly widely in the world’s industries today, with clear implications for shipping too.

Steel At The Heart

The strength of Iron Man’s suit was what helped turn Tony Stark into a superhero. The versatility and strength of steel has made it today’s most important construction material, with 1.6 billion tonnes of steel produced last year. Over recent decades, steel became one of shipping’s superheroes, with the unprecedented growth in Chinese steel production leading to a doubling of global steel output between 2000 and 2014, and helping to underpin the biggest shipping market boom in history. Growth in China’s raw material demand was explosive, and by 2014, global seaborne iron ore and coking coal trade totalled 1.6 billion tonnes, one seventh of total seaborne trade.

A Dangerous Weapon

But even superheroes have weaknesses, and reaching new heights was problematic for Iron Man, when the build-up of ice on his suit at high altitudes brought him back down to earth with a bump. A distinct chill in the air has recently surrounded the steel industry too. Slower economic growth in China, which uses half of the world’s steel, led Chinese steel consumption to drop 5% in 2015, undermining steel prices. Difficult economic conditions elsewhere also limited steel use, with consumption in Latin America and the Middle East declining 7% and 1% respectively last year, and overall, global steel output fell 3%. Weaker demand for steelmaking materials was a key driver of the fall in seaborne dry bulk trade in 2015, despite a 20% surge in Chinese steel exports. The steel market remains challenging with world consumption expected to fall again in 2016, and dry bulk trade still lacks the power to boost the bulker markets back into higher altitudes.

In Need Of A Shield

Of course, steel also impacts the supply side of the shipping industry. In Iron Man’s final showdown with the ‘Iron Monger’, in the end it all comes down to a good design and precise timing, concepts close to any shipowner’s heart. As the very fabric of the ships themselves, steel is a key cost for shipbuilders, but volatile prices have just as big an impact at the older end of the market. With continued exports of surplus steel from China maintaining pressure on steel prices, there is limited light at the end of the tunnel for owners scrapping ships in difficult market conditions for values around 50% lower than just two years ago.

Iron World

So there you have it. An Iron Man with a will of iron can save the world, whilst steel can bring the world’s shipowners fortune and challenges in equal measure. Steel may no longer be the superhero of seaborne trade growth, but it is still the glue that quite literally holds the shipping industry together and keeps 11 billion tonnes a year of cargo afloat. Now that’s a superhuman effort. Have a nice day!

SIW1239 Graph of the Week

Bulkcarrier owners could be forgiven for feeling just a little bit dizzy at the moment. The unprecedented growth in China’s steel industry over the last decade has for years provided an adrenaline-infused experience in dry bulk trade. But with both Chinese steel production and iron ore imports registering a decline in the first half of 2015, is the playtime over?

Down To Earth With A Bump

It’s no surprise that the recent wobbles in China’s economy have been leaving dry bulk’s thrill-seekers with a nasty headache. Construction activity has slowed, and total steel use dropped by 5% y-o-y in the first five months of the year. Steel production has declined by a less severe 1% y-o-y, but this is still an unpleasant change of direction for those accustomed to average output growth of more than 10% per annum over the last ten years.

Round The Roundabout Again

Yet these worries over China’s steel industry are not new. According to China’s annual estimates, steel output growth in 2014 slowed to 1%, from 14% in 2013. However, iron ore imports increased in 2014 by a massive 15% to 914mt. Almost heroic growth in Australian iron ore production flooded the global iron ore market with cheap ore, displacing some higher-cost domestic Chinese ore production. Ambitious production expansion in Australia is still underway, and exports from the country are up 9% so far this year, but total Chinese seaborne imports are down 1%. So what has changed?

Balance Shifts On The See-Saw

This year seems to have proved a tipping point in the iron ore market. Weak Chinese demand is contributing to record low iron ore prices (dipping below $50/tonne in April). In 2014, the rapid drop in prices boosted China’s overall import demand, but no such positive effect is visible this year. Instead, the extent of the price drop has squeezed out a number of small iron ore miners across the world, and Chinese imports from many smaller suppliers have been depressed this year. And while Chinese miners have clearly reduced domestic production, there are questions over how much more capacity (particularly state-owned) will be cut.

Swings In Need Of A Push?

The unsettling thought for the dry bulk market is that the excitement of the Chinese ride could be coming to an end. Despite the price drop, most major ore miners are forging ahead with expansion plans. If China’s steel usage has peaked, miners will be fighting for market share in a shrinking demand arena. And if Chinese ore output proves resilient to price pressures, this could leave those expecting a resumption of firm iron ore trade growth with only a severe case of vertigo.

While global growth in low-cost ore production could still boost imports later this year, there is certainly no longer a consensus that China’s steel industry has considerable long-term growth potential. Faced with this ominous scenario, bulker owners will be hoping that the current weakness in China’s iron ore imports is only a temporary downward swing. Time will tell, but for some the playground which once spurred great excitement might be starting to lose its appeal.

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