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1 review of China main coastal dry-bulk cargo market in the 1st quarter
1.1 ports performance
Influenced by macro economy, port transport kept shrank in the past 2 months. However, port throughput stopped negative growth and increased 2% in March on a month-on-month basis. Total throughput of state-level ports of January and February is 860 megaton, 630 of the throughput of coastal ports, which declined 7.2%, and 230 is that of Inland ports, which grew 1.5%. Although throughput of February continues to grow negatively, with the decreasing rate 1.9% off, port performance, especially that of inland port, shows a recovery trend.
1.2 Coal Transport Market
1.2.1 factors influencing demand & supply
1. Coal demand and port storage fluctuates
Coal storage to a large extent reflects the supply and demand of coal, and vice versa.
At the beginning of 2009, daily coal consumption slightly grew, while port storage declined for some extent. In mid-January, the lowest storage of Qinhuangdao Port was 4.94 megaton, 1.31 megaton lower than that of year-end of 2008. As steel mills restored production, demand in some degree rose. However, storage of Qinhuangdao Port rebounded till March 2nd, to 7.67 megaton due to the weak demand. From then, coal transport recovered, so that coal storage fell to a reasonable level. Till March 31st, the storage came to 4.8567 megaton, declined slightly compared with that of early March. That is 38% off from 7.9 megaton to 3.04 megaton. Coal storage of Guangzhou Port fell from 2.608 megaton in February to 1.908 megaton on March 25th.
2. Electricity consumption recovered
Data from China Electricity Council displays that total electricity consumed in the first two months was 497.218 billion kilowatt-hours, declined by 5.22% year-on-year. Industrial electricity consumption was 343.666 billion kilowatt-hours, decreased by 10.37%. Total electricity consumption in February turn positive after 5 months of decline, because spring festival of 2008 was in February while that of 2009 was in January. On another hand, snowstorm in last February influenced electricity consumption quite negatively. From March, as the declining trend of coal steam generating capacity eased slightly and the carry out of domestic demand promoting policies, companies restored production. The growth demand to some extent promoted the market in late March. Although the market shows some positive trend, steam coal demand and supply didn’t recover virtually.
1.2.2 Transport volume
Data from chineseport displays that, port coal throughput in January declined 9.1% year-on-year. That of February declined 15 million, which is 15.5% off year-on-year. Throughput of Qinhuang port, a main port of loading in the north, grew significantly, the daily shipload of which exceeded 570000 ton. Statistics from China Ports Association displays that quantity of shipments amount to 40 megaton, decreasing rate of which is much lower than that 2 months ago.
Since November, 2008, transport volume of coastal dry and bulk cargo kept growing negatively for 4 months, of which the largest dry and bulk cargo transport company account for only 9.309 megaton, 29.6% off year-on-year. Coastal coal transport market of China began to recover from March this year. Most companies signed inland coastal dry & bulk cargo contracts. 70% capacity of China Shipping’s dry & bulk cargo vessels has signed COA; the rest 30% for coal shipping is still in negotiation.
1.2.3 Freight
From the beginning of 2009, coastal transport freight of coal implied a trend of declining. Before the spring festival, freight rate of coastal dry & bulk cargo rebounded slightly for coal consumption of southern power stations increasing. However, after spring festival, coal store of power stations kept high, which caused the slight declining of freight rate of coastal dry & bulk cargo. From mid March, freight rate index kept increase slightly for demand of steam coal grew.
Inland dry & bulk cargo COA freight was influenced by excessive capacity caused by economic recession. The negotiation impasse of coastal coal transport market was broken in 2009, so most companies signed or are ready to sign inland coastal dry & bulk cargo contracts to lower freight by 30%-40%.
1.2.4tranport capacity
In 1st quarter, the whole market is trying to ease the situation of excessive transport capacity. However, the situation could not be completely improved, as orders made several years ago will provide the market with new ships. CHINA SHIP DEV, China’s biggest coastal transport company, claims that they will buy 19 ships of 2720000 DWT, 5 of which are Bulk carriers, while 11 old ships will be replaced.
1.3 Metal ores
1.3.1 Supply-Demand Analysis
1. Negotiation on iron ore in suspense, iron ore stores in ports. From the beginning of 2009 to mid February, as the market recovered, port iron storage declined. Up to February 13th, storage of 19 iron ore ports of loading declined to a lowest point, 57.31 megaton. Meanwhile, storage of steel mile kept growing because of iron ore transported in from ports. Till March 27th, port storage of iron ore soared to 65.4 megaton. However, it doesn’t cause stock of port.
2. Excessive steel produced
As storage of large steel miles declined and the worry of price growth after the negotiation, demand of iron transport increased. As China Iron and Steel Association reported, crude steel production of January and February reached 81.98 megaton, with an average daily steel production of 1.897megaton. The main kinds steels’ storage of 20 Chinese large and mid-sized cities amount to 6.7 megaton, 1.84 megaton, which is 37.9% more than that of January. Among which inner storage accounts 5.9 megaton, increased by 41.7%; while port storage is 800000 ton, 15% up. Therefore, the situation of excessive steel production is still negative.
1.3.2 Transport volume
Although the throughput of January is 4.5% up year-on-year, and 60% up than December last year, that of iron ore of February declined, by around 8% year-on-year and 12%. In March, as no agreement was made in international iron ore negotiation, transport of iron ore increased in a short period for the fear of price growth afterward. Rizhao Port, a main iron ore port of China, gained a throughput of 25.61 megaton in 1st quarter, 12.8% up year-on-year.
1.3.3 Freight
In 1st quarter this year, as the stimulate policies carried on, iron producers largely cut production in 4th quarter last year regain production, which stabilized freight and the whole coastal iron transport market. From late February, as excessive steel are produced, storage grew. Iron ore demand kept at a low level and the index declined slightly, esp. that of Zhangjhiagang. It declined from 1322.30 point at the beginning of 2009 to the current 674.64 point.
1.4 grain
To deal with the continuous grain price declining raised by global financial crisis, China unveiled plans such as purchasing corn with limited priceand canceling export tax of corn. However, its supply and demand shows strong features; of which national corn storage stabilize the transport demand between south and north.
At the beginning of 2009, grain price declined from 806.01 point to 628.57 as global financial crisis further spread. Then, as the new policies stimulated, corn purchase price in the north recovered. On March, 25th, coastal freight index of grain end with 756.19 point, 10.4% up compared with the last week.
2 short-term outlook of China coastal dry & bulk cargo transport market
The report estimated that China coastal dry & bulk cargo transport market will keep downturn in 2nd quarter, and slightly rebound in the 2nd half of 2009.
2.1 predict of supply and demand
1. Coal: demand grew slightly, while the whole is still in downturn
China export business face great crisis in the economic depression. The problem of coastal industry’s production directly caused the over supply and storage in coal market.
In 2nd quarter, as the power coal contract was signed, key coal mines small coal mines regained production. Coal demand also recovered. However, considering that global financial crisis still influenced trade, domestic real estate industry and consumption,
Summer peak of 2009 is a good opportunity for recovery of coastal dry & bulk cargo transport market. Research reveals that inner coal demand and trading volume is low. Coal transport freight kept declining and most shipping companies are losing. They all hold the view that the market won’t get better in 1st half of 2009 and hope it to recover in 2nd half.
2? Iron ore: iron ore transport market fluctuated under the influence of excessive production and plans to stimulate domestic demand.
The report believes that transport demand of 2nd quarter will keep the growing trend of 1st quarter.
At the latter half of 2nd quarter, excessive iron storage in 1st quarter keep the market at a depression. Transport demand shows a trend of declining. After then as the carrying on of the 4 trillion plan, the growing raw material demand will stimulate coastal dry 7 bulk cargo transport demand.
3. Grain: seasonal influence stabilized the transport demand.
2.2 transport capacity
From 2005, as the coastal market keeps prosperous, new ships entered the market every year. However, from 2009, market shrank and supply exceeds demand, thus shipping companies got into trouble. Currently, China has ships of 80 million DWT, 30 of which are old enough to be dismantled. However, orders made before will bring new transport capacity into the market. How the dismantling enforced will to some extend influenced the demand and supply of transport capacity of 2009. In a word, the report holds the view that coastal transport market won’t recover in a short period of time; supply will still exceed demand in 2009.
2.3 transport freight
SISI’s annual report of 2008 mentioned that CCBFI fluctuated at a low level in 1st quarter; it may grow marginally in 2nd quarter. It is estimated that freight rate will keep at around 1250 point in 2nd quarter and it may rebound in 3rd and 4th.
1. Coal
As China coastal coal transport contract was singed, coal transport freight was stabilized, and coal transport freight will slightly rebound in 2nd quarter. Port coal storage of Qinhuangdao Port is still large that the current freight will keep at a low level. Analysts point out that, energy generated in February will grow slightly year-on-year for the spring festival, while coal storage of power station declined slightly. On March 31st, coal storage of Qinhuangdao Port fall to 4856700 ton. However, it still has the possibility to rebound. Downstream businesses like iron and concrete will face 2nd round of stress of storage. In such condition, if the domestic demand promoting policy works, coastal coal freight will slightly grow in June.
As the transport supply is excessive, coal price of 2009 will be below the average level of Long-term coal transport contract agreement.
Summarizing factors above, the price changing in 2nd quarter of 2009 will be displayed in P2
2. Iron ore
In 1st quarter, not only small companies, mid and large sized enterprises recovered at an unreasonable speed that serious problems were caused. Iron ore transport demand of 2nd quarter won’t recover significantly and freight will fluctuate at a low level because of the large coal storage. In 2nd half of 2009, as structure of steel industry improved and storage declined, capital construction will stimulate iron transport, thus freight will grow.
Freight trend if 2nd quarter is as P-3 displayed. It is estimated that freight iron ore in 2nd quarter will keep stable at a low level; while in 2nd half of 2009, it will grow for the demand of capital construction.
3. Grain
Freight trend if 3rd and 4th quarter is as P-4 displayed. Considering 2nd quarter’s state stored corn purchase comes to an end and storage of southern feed enterprises keeps at a high level, it is estimated that coastal grain freight will decline slightly currently and will increase for some extend in 2nd half of 2009.
3. Suggestions
1. To seek for COA & steady supply
In the downturn, COA is important for shipping companies to withstand risks with powerful parterres. Meanwhile, strengthened cooperation will provide firm support for them to overcome difficulties.
2. To dismantle old ships & cut transport capacity
As the market won’t recover in a short term, ship owners should be active. 3 measures should be taken. 1, dismantling old ships 2, cut current transport capacity 3, cutting orders or delaying the delivery.
3. To take priority to cash flow & increase operation capital return
Shipping companies should adjust strategies in time, take priority to cash flow, and be cautious in investment and expanding, and receivables should be taken back.
4. To strengthen internal management & clarify development direction
Shipping companies should make reasonable use of inner resources and clarify development direction. Cost should be saved, and managers should be strictly trained.
5. Cost first
Strong measures should be taken to decrease controllable cost; executive ability should be improved; fuel cost, repair cost, material cost and labor cost should be controlled. |
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