{"id":161621,"date":"2023-06-29T08:00:00","date_gmt":"2023-06-29T00:00:00","guid":{"rendered":"https:\/\/www.mediaintel.asia\/?p=920584"},"modified":"2023-06-29T08:00:00","modified_gmt":"2023-06-29T00:00:00","slug":"shipping-faces-fallout-as-chinas-post-covid-rebound-falls-flat","status":"publish","type":"post","link":"https:\/\/www.chinalegalblog.com\/en\/2023\/06\/29\/shipping-faces-fallout-as-chinas-post-covid-rebound-falls-flat\/","title":{"rendered":"Shipping faces fallout as China\u2019s post-COVID rebound falls flat"},"content":{"rendered":"
\"MediaIntel.Asia\"<\/a><\/div>\n

A strong Chinese economy creates a virtuous cycle for ocean shipping. The manufacture of goods fills container ships and car carriers on the way out, and directly or indirectly drives demand for bulk commodities that fill bulkers and tankers on the way in.
\nExports became even more important to China\u2019s economy in recent years as COVID curbed domestic consumption and a credit crunch squeezed property development. Now, Western demand for Chinese containerized exports has dropped just as the post-COVID rebound in Chinese domestic spending is faltering.
\n\u201cPeople really expected China to come out and really accelerate but the Chinese recovery has been really poor,\u201d said Ole Slorer, head of infrastructure and energy at investment bank BTIG, at the Marine Money Week conference on June 22.
\nChinese stimulus is still believed to be coming, but there is growing sentiment that it won\u2019t be big enough \u2014 or raw materials-intensive enough \u2014 to jump-start bulk commodity shipping rates. \u201cAfter the global financial crisis, China engaged in a mega-stimulus. We should not expect to see a mega-stimulus this time around,\u201d said Duncan Wringley, chief China economist at Pantheon Macroeconomics, during a presentation on June 20.
\nAs for China\u2019s all-important containerized exports, the spot rates tell the story: The Freightos Baltic Daily Index for the China-North America West Coast lane put spot rates at just $1,190 per forty-foot equivalent unit on Tuesday. That\u2019s down 17% from June 6 and 14% year to date.
\nAverage spot rates in USD per FEU. (Chart: FreightWaves SONAR)
\nExports playing a bigger role in steel demand
\n\u201cChina drives everything in the dry bulk shipping world and everyone seems to be waiting for this big stimulus, which always seems to be right around the corner,\u201d said Serafino Capoferri, associate director of asset manager Macquarie, at Marine Money Week.
\nShipping rate optimism rests on stimulus in the property and infrastructure sectors that would hike demand for steel and thus demand for imported volumes of iron ore and metallurgical coal.
\nMacquarie\u2019s Serafino Capoferri. (Photo: Marine Money\/David Butler)
\nBut Capoferri stressed the importance of Chinese exports to steel, and by extension, Chinese dry bulk imports. \u201cOne point that is very important to make, especially when you\u2019re thinking in terms of stimulus, is that since the pandemic, the manufacturing sector has played a much bigger role when it comes to overall steel consumption in China.
\n\u201cVery often in this industry [shipping] we think it\u2019s all about property development, but in reality, manufacturing\u2019s share of total steel demand has grown, really driven by this export boom we\u2019ve seen since 2020. Clearly, China remains the factory of the world, and exported goods contain a lot of commodities and a lot of steel.\u201d
\nThe best example of steel use in exports (albeit noncontainerized) is automobiles. Chinese auto exports have tripled since 2020.
\nAltogether, Macquarie estimates China indirectly exported 143 million tons of steel via goods exports last year, or 14% of production, not including direct exports of finished steel. The numbers \u201chighlight how important manufacturing has become and how exposed China is to the ex-China cycle,\u201d said Capoferri.
\n\u2018Pronounced slowdown\u2019 of exports in 2nd half?
\nWringley said, \u201cDemand is slowing down and where\u2019s that demand slowing down? Number one, on the external side of things. Manufacturing is cooling, quite obviously.\u201d
\nChina\u2019s goods exports bounced in March then fell back. \u201cThe strongest reason for the bump in March was the catch-up with back orders that built up during the zero-COVID policy and the exit [infection] waves as zero-COVID was dropped,\u201d Wringley said.
\n\u201cThat brief catch-up period has already begun to fade as we go into June and the second half of the year. If you look around the world, global demand is clearly slowing. If you look at other Asian countries like Korea, exports have been falling quite sharply.
\n\u201cThere will be a little bit of a cushioning effect as China has managed to diversify exports to nontraditional markets, like Belt and Road [supply chain partner countries], like \u2014 notoriously \u2014 Russia, and to some other countries. But I think that can only partly mitigate what is going to be a pronounced slowdown of exports in the second half of the year.\u201d
\nData from Descartes shows that U.S. containerized imports from China have followed the same pattern as the broader market, falling back from one-off COVID-era peaks. U.S. imports from China in January to May were down 26% from the same period last year.
\n(Chart: FreightWaves based on data from Descartes Datamyne)
\n\u2018They don\u2019t want another big debt hangover\u2019
\nAccording to Pantheon, manufacturing accounts for 27.5% of production inputs to Chinese GDP, with construction at 53.5%, services at 12.1% and other production at 6.9%.
\nDry bulk shipping has historically benefited from Chinese stimulus that spurs construction. But Wringley said there are risks that \u201care holding back the government from pushing the traditional stimulus pedals in the property sector or really boosting infrastructure.\u201d
\n\u201cThey don\u2019t want another big debt hangover,\u201d he said. In addition, \u201cthere are just fewer economically productive opportunities for investment\u201d in property development and infrastructure. \u201cThe more you try to accelerate infrastructure, the more local governments reach for those \u2018white elephant\u2019 projects.\u201d
\nWringley believes there will be stimulus, but \u201cit will be pretty limited stimulus.\u201d
\nStimulus upside: \u2018Nothing too cray-cray\u2019
\nAccording to Capoferri, \u201cThere\u2019s no question the government is moving more and more toward supporting the economy, but we don\u2019t think we\u2019re going to see a big push on property this time around. The structure of the Chinese economy has changed. Services are much more important than they used to be, and manufacturing as well.
\nA bulk carrier unloads iron ore at a Chinese terminal. (Photo: Shutterstock\/Ambient Pix)
\n\u201cThe property sector faces a lot of structural challenges. It\u2018s obviously a saturated market in the sense that urbanization is slowing and demographics are not as favorable, so pushing that sector would bring risks, particularly around financial stability, and we think the Chinese leadership is aware of this.
\n\u201cThat\u2019s why we think these hopes of a big push for property have been consistently disappointed. The market has been waiting for a property stimulus for 12-18 months and it hasn\u2019t happened.
\n\u201cWhat we think is more likely is more targeted support measures around other sectors. And within the infrastructure basket, we think it will focus on areas like the power grid and the energy transition \u2014 and unfortunately [for commodity shipping], those are not super steel-intensive.\u201d
\nPessimism on stimulus upside for dry bulk rates is growing. \u201cNew stimulus measures could bring a little boost to the market, but nothing too \u2018cray-cray,\u201d said ship brokerage BRS.
\nCrude imports strong but \u2018signs of weakness\u2019 emerge
\nAmid the daunting outlook for container exports and unexceptional outlook for dry bulk imports, China\u2019s liquid bulk imports have outperformed. Liquefied gas carriers transporting propone from the U.S. to China are in high demand, and Middle East-to-China oil volumes supported a temporary spike in supertanker rates earlier this month.
\nAccording to data from price-reporting agency Argus, China\u2019s crude imports averaged 12.1 million barrels per day (b\/d) in May and 12.3 million b\/d in March. The only two months on record with higher volumes were June and July 2020, when COVID heavily depressed crude prices.
\n(Chart: FreightWaves based on data from Argus)
\nYet here too, there are bearish signs that Chinese shipping volumes may not grow as much as hoped.
\nA laden tanker off Qingdao, China. (Photo: Shutterstock\/Igor Grochev)
\nShip brokerage Braemar said Wednesday the Chinese National Petroleum Co. cut its 2023 forecast for China\u2019s year-on-year oil demand growth to 3.5%, from 5.1%.
\nBrokerage and consultancy Poten & Partners said Friday that \u201cjet fuel demand growth is lagging \u2026 [and] one of the key reasons is China. While domestic flights are booming, international flights are lagging.\u201d Poten said \u201cgrowth in China\u2019s international flights has been focused on regional flights with destinations in Southeast Asia\u201d \u2014 short-haul routes that consume much less fuel than long-haul routes to North America and Europe.
\nArgus said in mid-June that crude prices had eased \u201con slower-than-anticipated Chinese demand growth.\u201d
\nArgus reported Friday that \u201cChinese crude imports \u2026 continue to pile up in storage tanks\u201d while apparent refined products demand \u2014 refinery output plus net products trade \u2014 dropped by 560,000 b\/d in May versus April. \u201cChinese oil demand remained high in May but emerging signs of weakness suggest a significant pullback is in the cards,\u201d warned Argus.
\nRelated articles:<\/p>\n

This data comes from MediaIntel.Asia's Media Intelligence and Media Monitoring Platform<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

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