Archives for posts with tag: import

As the pace of growth in Chinese seaborne imports has slowed, and prospects for a return to stronger rates of expansion appear to have diminished, focus on the potential for other countries to help provide impetus to global seaborne trade growth has increased. With an economy expanding at a robust pace, and a population close to China’s, India has increasingly featured in the spotlight.

The Big Bang

China’s dramatic growth and increased raw material demand since the turn of the century propelled world seaborne trade to new heights. By 2014, China’s imports of dry bulk goods, crude oil and oil products reached 1,850mt, 1,600mt more than in 2000. China’s industry-led development saw unparalleled growth in steel output, whilst refinery capacity and coal imports surged. But with coal demand and steel output falling, imports stalled in 2015.

A Dimmer Light?

This rapid expansion in China’s imports occurred fairly quickly, and comparison to a ‘base year’ shows that Indian imports are tracking behind China’s progression. In 2000, China’s GDP per capita stood at US$1,000, and the country’s dry bulk and oil imports topped 200mt. India reached both of these milestones in 2007, and since then, Indian imports have risen by 280mt to around 500mt, compared to China’s 950mt of extra imports between 2000 and 2009. Differing political systems and economies have clearly proved key. Industry accounts for a greater share of China’s GDP than India’s, whilst 25% of growth in the value of India’s trade in the last ten years (in both goods and services) was accounted for by the service sector, compared to 12% for China.

Reaching For The Stars

The concern for some shipping sectors is that the pace of growth in India’s import volumes already appears to be slowing, partly as targets for thermal coal self-sufficiency have undermined coal imports since mid-2015. Meanwhile, India is aiming to become a ‘global manufacturing hub’, with ambitious targets to treble steel production capacity to 300mt by 2025. However, the steel industry globally is currently under severe stress, and it is also unclear to what extent output growth may boost iron ore imports given India’s domestic ore reserves.

What Do The Skies Hold?

Nevertheless, India seems to hold plenty of potential in some areas. The outlook for imports of coking coal, crude oil and oil products still appears positive. And at a macro level, in 2015, India’s dry bulk and oil imports represented 0.4 tonnes per capita, below the global average of 1.0 tonnes per capita. Bringing India towards this level could generate significant additional import volumes.

So, the stars don’t seem to be in a hurry to line up Indian imports for growth on this explosive scale for now, with coal imports likely to fall further. But this may not be the end of the story. Growth in India’s refinery capacity, steel production, GDP and population looks set to outpace China’s in the coming years. Whilst Indian imports may not dazzle in some areas as brightly as China’s have, the shipping industry will still be hoping they may provide some sparkle in others.

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Motoring terminology has always provided shipping analysts with a wide range of vocabulary to use when describing the car carrier sector. Last year demand growth appeared to have stalled, and the indicators suggest that there hasn’t been a significant acceleration this year. With the market improvements seen back in late 2013 now seemingly eroded, what are the signs on the road today?

Trade Growth Stalling

In some ways the signals are quite clear. The road has hardly been smooth for seaborne car trade in recent years. Volumes have yet to surpass the record level of an estimated 28.5m cars in 2007, with total trade in 2015 expected to total 26.7m cars. Trade fell by more than 30% in 2009, and while volumes have recovered to some extent, and increased by a helpful 4-6% per annum in 2011-13, growth in 2014 ground to a halt. Relocation of car production limited shipments from key Asian exporters, while imports into a number of key and emerging regions were affected by economic and political disruptions.

Similar trends have imposed a ‘speed limit’ on car trade growth this year, with volumes only on track to increase by around 1% in 2015. Strong car sales in the US and Europe have helped to drive some growth, but continued expansion of vehicle output close to major and developing demand centres, combined with economic difficulties significantly limiting imports into China, Brazil and Russia, has prevented further acceleration.

Down In A Low Gear

Meanwhile, growth in the PCC (Pure Car Carrier, including Pure Car & Truck Carrier) fleet has also decelerated in recent years, easing from 5% in capacity terms in 2013 to 2% in 2014. While the majority of car carriers operate under long-term agreements, the market is still impacted by supply and demand trends, and the slowdown in fleet growth appears, with demand looking lacklustre, to have been insufficient to prevent weaker fundamentals. Charter rates for a 6,500 ceu PCTC had improved in late 2013 and into 2014, topping $26,000/day in mid-2014. However they have since come under pressure and sentiment has become more negative during 2015.

Alternative Routes?

On the investment side, however, the indicators might be suggesting something else. Following limited ordering of new car carrier capacity in 2014, owners have put their foot down and in the first ten months of 2015 ordered units of 0.25m car equivalent capacity, more than in six of the last seven years. Replacement demand appears to have driven much of this, but there has been plenty of activity at the top end of the size range, so clearly some owners still think ‘big is beautiful’ and that the road ahead seems clear.

The Traffic Report

So, the car carrier sector may have hit a rather big jam. But down another road, there’s still plenty of traffic flow. Slow lane or fast, this all needs further examination, and each year, in our Car Carrier Trade & Transport report, we look at the trends in detail. This year’s report is available on the Shipping Intelligence Network now. Have a nice day.

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Last week’s Analysis noted that demand cycles are part of the shipping industry scenery, and 2015 so far has seen some fairly mixed trade data to say the least. China has been at the centre of this, and there’s little consensus on the way that things might head next. There are a range of possible scenarios; which one is closest to the outcome will be key – the health of world seaborne trade could depend on it.

Lead Driver Slowing?

China has long been at the heart of the expansion in global seaborne trade. Between 2002 and 2014, 4 billion tonnes were added to the world seaborne total. Chinese imports accounted for 94% of the increase in iron ore volumes, 35% of the expansion in coal volumes and equivalent to more than 100% of the growth in crude oil trade. Chinese exports accounted for around 60% of the expansion in container trade volumes. However, Chinese volumes have been under severe pressure in 2015 so far. Based on latest year to date data, Chinese seaborne coal imports are down 40% y-o-y, on the back of increased anti-pollution measures and slowing thermal power generation. China’s iron ore imports are down 1% (up 15% in full year 2014), with steel production flat, and its crude oil imports are up by just 4% (up 10% in 2014). Chinese container exports are estimated to be just 4% up, with trade to Europe down 3%.

Lack Of Consensus

Although most observers agree that Chinese volume growth will fall this year, there is a clear lack of consensus on the extent to which it will do so. A number of scenarios could unfold, and the graph shows how some of these could impact on world seaborne trade growth based on possible trends in Chinese ore, coal and crude oil imports and container exports. Scenario ‘A’ is based on our latest estimates for Chinese trade in these major cargoes. ‘B’ is based on the (reduced) rate of y-o-y growth in the year to date being maintained for the rest of the year. ‘C’ allows for trade volumes in the rest of the year to be flat compared to 2014 monthly levels. ‘D’ is based on the growth rate for the remainder of the year in each cargo reaching the full year 2014 level.

Scenario ‘A’ puts 2015 world seaborne trade growth at 2.9%. But, ‘B’ and ‘C’ suggest overall growth in 2015 of 1.6% and 2.1% respectively; much lower than has been seen in recent years, and tricky news for the shipping markets, with world fleet capacity growing by more than 3%. Moreover, Chinese import volumes in a range of other bulk cargoes are also under pressure in the year to date, and the failure of these to see improved growth could lead to downside to even the most pessimistic of the scenarios here.

Been Here Before?

So, looking at the data, there are some relatively negative scenarios. But some might argue that we have been here before, and each time Chinese expansion has pulled through, maintaining the impetus behind global seaborne trade. China is a big country, and previously government stimulus has provided support (though there is debate over the potential impact of this factor in the future). There are many possible outcomes, but one thing is for sure, if healthy growth in global seaborne trade is to be maintained, the world will be looking towards China for improved volumes. Have a nice day.

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The rigid pipe layer fleet is complex, varied and sometimes perplexing: S-lay, J-lay, reel-lay; barge, vessel, semi-sub; tensioners, carousels, moonpools – units therein defy easy comparison with one another. And so, unlike in many sectors of the offshore fleet, it is not immediately clear what is a ‘high-spec’ and what a ‘low-spec’ unit. What is needed, then, is a framework to analyse the 172-strong pipe layer fleet…

Offshore Operations

In essence, pipe layers are used to install rigid pipelines on the seabed, primarily during the development of offshore fields. These pipelines are used to export oil/gas to shore, or to transport fluids between seabed or surface installations within a project area. Pipe laying is conducted during the EPC phase of project development, consequent on award of (typically lump-sum) EPIC and SURF contracts, usually to specialist offshore construction companies like Allseas, McDermott, Saipem, Subsea7 or Technip, who own 4, 5, 14, 6 and 6 pipe layers respectively – 20% of the fleet. There is no pipe layer spot market as such, so comparing day rates to pick out the high-spec from low-spec units is not possible.

Inscrutable Idiosyncrasy?

Vessels’ traits are not immediately helpful either. Monohull structures account for 19% of units and barge/semi-sub structures for 81%. Pipe sections are welded on-board and deployed via J-Lay towers (8% of units) or S-Lay stingers (76%), the letter indicating the curvature of the pipeline as it is lowered to the sea floor. However, 3% of vessels have both J-Lay and S-Lay structures; 16% use cranes or have hybrid, reel-lay systems; and the tensioner capacities of lay systems (i.e. the weight of pipeline they can support) range from under 10mT up to 2,000mT. There is no simple correlation between a single feature and a unit’s capabilities: “Lorelay” has tensioners of 265mT, yet cannot lay pipes in ultra-deepwaters; “C Master”, with tensioners of 160mT, can. The secondary functions of units can also vary greatly: 10% of units have ROV capabilities, for example. Moreover, 19% of units in the flexi-lay fleet can install rigid pipelines (and 5% vice versa). How then, amidst this variation, to distinguish a ‘high-spec’ from a ‘low-spec’ pipe layer?

A Promising Perspective

One way is to cross reference the maximum pipe lay water depth of units with the maximum diameter of pipe they can lay. Thus the 12 units in the “red” segment of the inset chart (e.g. “Seven Borealis” and “Sapura 3000”) could be considered high-spec and versatile, competing with units in the “dark blue” segment for ultra-deepwater subsea contracts, but with the “light blue” segment for large export pipelines in shallower waters. In the opposite quarter of the matrix, the 55 “grey” units are mostly barges, deployed in shallow waters like the Niger Delta and Lake Maracaibo. One could say there are four (overlapping) markets for pipe layer work. The range of EPC contracts for which construction companies are likely to bid will depend in part on the segmentation of their pipe layer fleets.

So, pipe layers have an array of characteristics complicating segmentation. However, some units are clearly better suited to some projects than others. By cross-referencing factors like water depth with pipe width, one can craft a framework for sorting through this diverse fleet.

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Over the last 15 years China has led maritime forecasters a right old dance. In 2002, rumours that Chinese iron ore imports were about to take off were hard to believe. In those days China’s total imports were below 400mtpa and the ore trade had been sluggish for a decade. But even the most bullish forecasters were way below target and in 2014 seaborne iron ore imports jumped 15% by 119mt to 914mt.

Ironing Out The Bumps

This was more than total Chinese seaborne imports which only grew by 65mt in 2014. Coal and metal imports both fell sharply, and the resulting 3% rise was the lowest since the Asia crisis in 1998. So dry bulk should say a very big thank you to Chinese iron ore importers for keeping some water under the hull.

Economic Discomfort

The problem now facing analysts is that the 2014 growth of iron ore imports does not appear to hang together with the rest of the steel economy. Construction slowed and shipbuilding output fell 14%. Overall steel demand decreased 3%, which makes the reported 1% growth in steel output look high. The real driver of import growth was a surge in low-cost ore production by major Australian miners, forcing out higher-cost mines in China and elsewhere. But estimates of the impact on domestic Chinese iron ore production vary, and official statistics suggest total output growth of 4%. Even after accounting for the falling grade of domestic ore, the figures don’t quite fit together.

Inscrutable Statistics

What’s going on? It’s a crucial question. Under-reporting of steel production could be a factor, and historical data has been revised up before. The 50% drop in iron ore prices last year may have led to stock building across the supply chain, or impacted domestic output to a greater extent than reported. Either way, it is clear that steel exports have surged, while strong Australian ore output depressed prices and kept Chinese imports firm.
Market Consequences

The worry for the dry bulk market is if Chinese demand falls enough to dampen imports. There are legitimate concerns that the construction and infrastructure programs which drove the steel industry over the last decade are facing serious problems. One issue is that the financial foundation of this growth is looking shaky. The debt to GDP ratio has risen sharply since 2010, much of it “back door debt” arranged by the provinces. As one leading economist put it at a conference in Long Beach California this week, “no country has ever escalated debt on this scale without something happening”. He thought the options are a crisis or a decade of slow growth.

Troublesome Times?

So there you have it. Thanks to Chinese steel, in the 2000s the bulker market enjoyed the biggest boom in history. Whatever the position over the debt mountain, readjusting the capital side of the economy will take time. A positive response is that we’ve been worrying about Chinese trade for the last 5 years – somehow the accident never happened, and there’s more low-cost mine expansion underway. Will our star performer continue to ride its luck? Time will tell. Have a nice day.

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As shipping market observers of a certain vintage will recall, 1980s Swedish rock band ‘Europe’ scored a huge hit with ‘The Final Countdown’. Following the global economic downturn, the European economy was facing up to a similarly fatalistic reckoning. Here we take a closer look at how things worked out in Europe, and the impact on seaborne trading patterns.

Not The Orient Express

When the economies of Asia even twitch, shipping market observers pay close attention and rightly so. China’s growth story has driven much of the expansion in seaborne trade in recent times, so when industrial production (IP) growth reportedly slowed to 6.9% in August, that made headline news. As has been well documented, industrial output growth in China and other Asian economies has driven rapid growth in imports of raw materials and also led to increased exports of manufactures to consumers in the West. Chinese and Indian IP combined is up by 99% on 2007 levels. Performance in Europe hasn’t got anywhere near those levels as its economies, particularly those in the Eurozone, have struggled badly since the crisis, but that doesn’t mean that it’s not worth taking a look at.

North And South

In fact, last year Europe was still close to China’s size as a seaborne importer, with volumes estimated at around 2 billion tonnes. But of course in terms of today’s economic performance, Europe is way behind. Industrial production in Europe, as the graph shows, is still below pre-recession levels and this has impacted strongly on bulk imports to Europe. In Northern Europe, IP in Germany, France and the UK combined is around 7% down on 2007 levels, and in Southern Europe things have been even worse, with IP in Italy and Spain combined down a whopping 27% on 2007. As a result, Europe’s coal imports in 2014 are projected to remain below 2007 levels at just under 200mt and iron ore imports are set to be well below 2007 levels at less than 130mt. Crude oil imports are projected to hit 8.4m bpd in 2014, 16% down on 2007.

Count The Boxes

But intriguingly, not all aspects of recent European economic activity are such bad news for shipping. Europe is a major importer of finished goods too, and in 2013 volumes on the Far East-Europe container trade started to expand again. In the first eight months of this year, European box imports from Asia were up by 8% year-on-year. Growing demand for manufactures, production of which has been outsourced far away, backed by inventory rebuilding, has left monthly box imports from Asia this year so far up 11% on 2007 levels, even if forecasters are suggesting that darker economic clouds are gathering once again over Europe.

Old Habits Die Hard

So, the economic crisis in Europe hit shipping hard, and the key drivers of trade are today elsewhere. But European consumers can’t kick old habits and they love a shopping trip. Industrial activity in Europe may well be weak, but in one arena at least, European activity has supported seaborne volumes. The ‘final’ outcome awaits but so far this year there’s been some counting up as well as down.

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While the expanding role of Asia (especially China, see SIW 1132) in seaborne trade has grabbed headlines in recent years, developments in the US, still the world’s largest economy, have also had a significant impact. In a short space of time, changes in the US energy sector have dramatically altered global trading patterns in a number of commodities, significantly impacting the pattern of volume growth.

Putting On A Spurt Of Energy

For much of the last three decades, US oil production has been in decline, falling on average by 1% a year since 1980 to a low of 6.8m bpd in 2008. Yet technological advances have since led to huge gains in exploitation of ‘unconventional’ oil and gas shale reserves. In the space of just six years, the US managed to raise oil output alone by an astonishing 60% to almost 11m bpd, a new record.

Making An Oil Change

This has led to huge changes in US energy usage and import requirements. Crude oil imports have almost halved since 2005, and since 2010 have fallen on average by 11% p.a. to 260mt last year. Exports of crude oil from West Africa in particular have had to find a home elsewhere (unsurprisingly, many shipments now go East). Since US crude exports are still banned, US refiners have taken advantage of greater domestic crude supply to produce high volumes of oil products, especially for shipment to Latin America and Europe. Lower US oil demand since the economic downturn has also contributed, and seaborne product exports reached 120mt in 2013, up from 70mt in 2009. Alongside global shifts in the location of refinery capacity and oil demand growth, these trends have transformed seaborne oil trade patterns.

The impact could be similarly profound in the gas sector. As US imports of gas, mostly LNG, have dropped (on average by 34% per year since 2010), plans to add up to nearly 100mtpa of liquefaction capacity by 2020 could mean the US eventually emerges as a major LNG exporter, potentially accounting for 15% of global capacity (from 0.5% currently). Meanwhile, LPG shipments are continuing to accelerate strongly, rising by more than 60% y-o-y so far in 2014 to 6mt.

Miners Under Pressure

There has also been an impact in the dry bulk sector. Lower domestic gas prices have pushed the share of coal in US energy use to below 20%, leaving miners with excess coal supplies. US steam coal exports jumped to 48mt in 2012 from 11mt in 2009, contributing to lower global coal prices (cutting mining margins) and higher Asian import demand.

So What Next?

So the effects of the changing balance in the US energy sector have been far-reaching, and there remains scope for more shifts to occur as trade patterns continue to adjust to changes in commodity supply and prices. While the firm pace of expansion in US oil and gas output may start to slow, any change to existing export policies could have further impact. What is clear already, in terms of seaborne trade growth, is that the focus has shifted away from US imports, for decades a key driver of the expansion of global volumes, towards the country’s developing role as an energy exporter.

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