The Dry Bulk Weekly Review in Shipfix Data
In contrast to soft or gloomy economic data last week, Shipfix’s forward-looking data set provided some rays of hope. According to our cargo order data for November, Chinese copper imports look set to increase in the new year, potentially heralding a rebound in industrial production. Also, demand for imported dry bulk commodities in the US has remained relatively stable, suggesting that any slowdown may be short-lived. However, a seasonal weakness for European steel imports provided no relief from fears that the continent may dip into a recession.
Renewed Strength for Cargo Orders for Copper Bound for China Could Herald a Pickup in Chinese Industrial Production
Last week's mixed readings for the official and Caixin PMIs for the Chinese manufacturing sector highlighted the difficulties in predicting the path forward for the Chinese economy. While the gauge produced by the country’s National Bureau of Statistics suggested that industrial output will remain under pressure in the near future, the reading from Caixin, on the other hand, projected that a recovery may be underway.
Demand levels for copper are often seen as a bellwether for economic growth, given its central role in modern manufacturing. After trending lower for much of the current year, prices for the red metal have recovered over the past six weeks. The rebound has been partly fuelled by higher demand from China amid recent reports of solid imports during October.
Shipfix’s forward-looking cargo order data set provided an early indication of October’s strong imports, with solid volumes during August and September. The time lag between shipping intentions and actual discharge in Chinese ports also suggests that Chinese imports of the red metal remained robust during November. On the other hand, a decline in cargo order volumes during October points towards somewhat weaker imports in the coming month. However, a rebound in demand for seaborne transportation of copper bound for China during the past month will see imports recovering in the new year. Hence, Shipfix’s data provide some support for Caixin’s more positive outlook for Chinese manufacturing.
Seasonal Weakness for European Steel Demand Highlights Continued Economic Headwinds for the Continent
Recent economic data releases in Europe indicate that the continent is at risk of slipping into a recession. While the manufacturing PMI for Germany improved this month, it, like its French equivalent, remained deeply in contraction territory. The continent’s largest economy also recorded negative growth during the third quarter. The bearish sentiments for the European economy have been fuelled by higher interest rates, among other things.
Europe may have a different impact on the seaborne trade of dry bulk commodities than China and India, as manufacturing has shifted to other parts of the world. Nevertheless, a recession and lower European demand could have a knock-on effect on other countries' imports of commodities, such as iron ore.
A decline in European demand for imported steel products could exacerbate the seasonal decline that usually takes place as the year-end approaches. Cargo order volumes for steel discharging in Europe have been on a downward trend since April. While the past month cleared the low for the year set in September, the monthly aggregate for the month remains around 6.5 million tonnes, approximately 46 per cent below the volumes recorded in April. December traditionally delivers the weakest reading of the year as European economic activities take a rest over the Christmas period. However, the current bleak outlook for the European economy could provide additional headwinds for the cargo order volumes in the coming month.
Smaller vessels and cargo sizes dominate the seaborne trade in steel products bound for European ports. Hence, any further decline in demand for maritime transportation will chiefly affect freight rates for the Handysizes. Additionally, the drop in shipments from distant shores, such as India, China and the Far East, is putting additional pressure on the tonne-mile demand in the trade.
Relative Stability in Demand for Seaborne Transportation of Dry Bulk Commodities to the US Offers Hope of a Limited Slowdown
As noted above, the past week delivered economic data for the world’s leading economies that ranged from soft to gloomy. In the US, consumer spending grew by a modest 0.2 per cent in October, the lowest reading in five months. At the same time, the PMI for the country’s manufacturing sector remained deeper in contraction territory than expected by the markets. While the continued, albeit limited, growth in consumer spending suggests that there is some residual strength left in the US economy, the headwinds for the industrial sector point towards a downshift for the US.
Demand for seaborne transportation of dry bulk commodities for discharge in US ports has remained relatively stable over the past year. After a peak in January, monthly cargo order volumes have remained around thirteen million tonnes over the past ten months. While volumes dropped by approximately eight per cent in November compared to October, aggregate demand remained reasonably close to the average for the year. The decline in demand was relatively broad across the commodities, but demand for seaborne transportation of steel to the US offset parts of the weakness. The higher demand for steel in the US could signal that the slowdown of the US economy may prove short-lived. Additionally, cargo order volumes for fertilisers remained robust following a period of weakness.
While cargo order volumes have been in line with what has been observed for much of the year, the demand for the different vessel segments has shifted somewhat over the past two months. The Supramaxes and the Ultramaxes have claimed a more significant share of the US-bound trade in October and November at the expense of the Handysizes. The development could provide additional support for the freight rates in the midsized segments.
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