Thursday, 12 July 2012

The Chinese coasters are coming!

The slowdown in China and falling demand for raw material at home will result in a major impact on the global bulk trade; increasing numbers of ships out of the country's massive coastal fleet- that totals about 2000 ships- is looking for employment in the international market, sending shock waves through the dry bulk markets in the process. The situation is exacerbated by falling Chinese demand from steel mills and other plants as massive stockpiles of coal and iron ore in China have meant that there is little business for coastal shipping. Industry watchers say that the impact of these vessel's entering depressed global markets will be large. 

"The iron ore and coal inventories at Chinese ports are very high," says shipping analyst Moses Ma of ICBC International, who expects continuing pressure on the dry bulk markets this year. 

Many coastal Chinese vessels- a Reuter's estimate says two thirds of the coastal fleet- are old, unregistered, unclassified and thus unfit for any international deployment. "These smaller ships don't get released into the spot market, they're often very old and only fit to hug the coast," says Reuters, quoting an anonymous shipping source. The remaining one third- still a sizeable number- are modern, fuel efficient ships, Supramax or Handymax sized and owned by established companies that are in a position to push them into international waters. These companies include China Shipping, COSCO and the Fujian Guohang Ocean Group. 

"There are many more ships lying idle at Chinese ports now - the environment for making money is not so good," a shipper says. Many of these are seeking employment in the choppy Indonesian coal trade, where the future is uncertain. "We've seen these Chinese vessels in the market, attacking the Indonesian coal business and undercutting everybody," a shipbroker with RS Platou told Reuters. 

China is the world's biggest coal producer and the biggest coal and iron ore importer. Its coastal trade has grown exponentially (up 88 percent since 2006, to 639 million tonnes) on the back of industrialisation and power demand in the south of the country: Chinese coal mines are in the north. The total coastal trade is estimated at a billion tonnes- including coal, steel, grain and fertiliser. However, this is now shrinking and has already fallen 3 percent this year, resulting in many coastal ships around with no cargoes to load. 

"China seems to have reached its limit for bringing in imported and domestic coal to the south and until that clears, they are not buying," a coal supplier told Reuters. Another said, "There have been defaults and deferrals to imports but also around 20 percent of our domestic sales to utilities have been cancelled or delayed for months because of high inventories - there are more ships idle."

In other connected developments, Indonesia slapped a 20% tax on nickel exports recently in a bid to restrict movement of raw material out of the country. It is considering similar restrictions on coal; should that happen, large numbers of Chinese ships will be on the hunt for other international markets again. India- with a recent unconfirmed 'official' announcement in Kerala that its Cabotage laws are being relaxed- had better watch out. The situation will be no better even if there are no Indonesian coal export restrictions; India is on track to become the leading international buyer of Indonesian coal later this year. Will Chinese ex-coastal ships be carrying it instead of Indian bottoms?


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