The Baltic Dry Index BDI in July increased by 42.5% month-on-month to 1633 for the second consecutive month of growth, setting a new high for the year. Looking at the index by ship type, Cape size (BCI) is 3024 (+33.4% m/m), Panamax (BPI) is 1379 (+38.3%), Handymax (BSI) is 844 (+41.1%), Handy size (BHSI) is 447 (+33.0%). Although all ship types increased from the previous month, all ship types were below the level of the same month of the previous year.
■Supported by iron ore demand in China
In July, the China Logistics and Purchasing Federation (CFLP) announced that the steel sector purchasing managers index (PMI) was 49.2, a slight decline for the second consecutive month. However, the production index was 54.5, surpassing 50 for the fourth consecutive month. The order index has been recovering both domestically and overseas, and steel mills continue to be actively producing. CFLP says that although demand for steel materials is currently declining due to the floods in the southern region, it is expected to continue to be supported by certain reconstruction demand in the future.
According to the China Steel Industry Association (CISA), crude steel production per day by member companies in the middle of July (11-20 days) increased by 6.0% to 2.138 million tons. From late April, active production has continued even now, without breaking below the level of the same period of the previous year.
According to steel research company Mysteel, the inventory of Chinese iron ore harbor as of July 31 stood at 114.03 million tons, increasing for the sixth straight week. However, compared to the same period of the previous year, it decreased by 4.8 million tons, and in particular, the inventory of Brazilian iron ore decreased by 9.42 million tons from the previous year to 25.72 million tons, a large reduction compared to other production areas. With steel production at record highs continuing, demand for accumulated raw material inventories is correspondingly large. Vale, the supplier, is relatively inferior in sales performance among major resource companies, and it is expected that the market will be underpinned by the company increasing its shipping offensive in the latter half of the year.
■ Is coal import restrained?
Meanwhile, in terms of coal, China imported 173.99 million tons of coal in the first half of this year, an increase of +12.7% compared to the same period last year. Currently, there is a movement to restrict coal imports, and it is expected to continue from the perspective of protecting the domestic coal market. Customs regulations were enforced between November and December last year, but it is likely that similar restrictions will be imposed this year even if the timing and format are different, and it is considered necessary to continue to be vigilant in the future. In particular, the Koyoshi Railway, which was completed in the fall of last year, named a country for efficiently transporting coal from the Sanxi region (Shanxi, Shaanxi, west of Inner Mongolia Autonomous Region), which is the main coal producing country in the country, to the consumption area in southern China. It is also a project and the annual transportation capacity reaches 200 million tons. The amount of coal produced in the Sanxi region accounts for 70% of the whole of China, but a considerable portion of the coal that was previously transported by sea from Qinhuangdao to Guangzhou can now be transported by land on the Koji road.
The Chinese government has set a goal of reducing the overcapacity of coal of 800 million tons from 2016 to 2020, but it is said that almost the target has already been achieved, and it will be consolidated into major coal companies in the future. It is expected that the domestic coal industry will be made more efficient by such means. While domestic coal supply will be smooth in China, demand for imported coal will continue to rise beyond a certain level as a cushioning material for the supply and demand balance, but it is no longer expected that import demand will grow significantly year on year as it once did. It is a difficult situation.
■ Grain movement is slow
Finally, regarding grain movements, South American loading, which has been a driving force for ship-to-board demand, has stopped, and Black Sea grain has been delayed compared to the average year. Also, although North American grain is gradually increasing with the US Gulf and NOPAC loading, it is not busy enough to compensate for the drop in demand for vessels in other water areas.
In mid-January, China signed a first-stage agreement with the United States to expand US product imports by $200 billion compared to 2017. Imports of agricultural products such as oil seeds, grains, meat, cotton, and seafood will increase by 12.5 billion dollars this year from 2017, or 19.5 billion dollars next year, for a total increase of 32 billion dollars. However, the US Department of State ordered the closure of the Chinese Consulate General in Houston, Texas on the 21st, saying that the Chinese government is carrying out espionage and infringement of intellectual property rights, and the Chinese side counters this and Chengdu, Sichuan Province. The US-China confrontation is intensifying, such as ordering the closing of the US Consulate General.
China is currently accelerating the purchase of US agricultural products, but there is growing concern that a large amount of unshipped items will be canceled. Should this happen, there will be a strong downward pressure on the market for small and medium-sized vessels after autumn. So far, the US and Chinese governments have repeatedly stated that the first-stage agreement will be implemented, but the grain market is increasingly skeptical. It is reported that the US-China talks will be held in August this weekend, and the trend is noteworthy.