China’s industrial recovery offers Hong Kong’s shippers sanctuary in rough seas
- Recent dry bulk shipping report shows improving activity in China, Hong Kong-based Wah Kwong Maritime says
- About half of the capacity of all Hong Kong-owned ships is in the dry bulk segment
Mainland China has emerged a bright spot in the global dry bulk shipping sector, news that will be welcomed by Hong Kong shipowners, who own a large number of such vessels.
“China is really back in action. If anything, it’s an opportunity right now [for shipowners]. There are strong volumes in construction materials,” said Mats Bergland, the chief executive of Hong Kong-based Pacific Basin Shipping, which specialises in this area.
Dry bulk ships carry raw materials such as iron ore, coal, grains, wood, steel and construction materials, and can be a barometer of industrial activity. About half of the carrying capacity of all Hong Kong-owned ships is in the dry bulk segment. The sector, in loss-making territory because of Covid-19 lockdowns, is being held up by demand for logs, grains, iron ore and other bulk products in China.
Port calls, or instances of merchant ships loading and unloading cargo, have risen considerably, said William Fairclough, the managing director of Hong Kong-based Wah Kwong Maritime. He said a recent dry bulk shipping report showed improving activity in China, “with all shipping segments now recording more port calls than during the same period in 2019 … a total growth running at about 20 per cent after the 30 per cent year-on-year fall experienced in mid-February.”
The mainland produced 53 per cent of the world’s steel in 2019, requiring enormous amounts of iron ore in the process. Dry bulk shipping analytics company Trade Views said this month it estimated that 79 per cent of demand for “capesize” shipping, or the largest dry bulk vessels at sea, was for iron ore, and that 74 per cent of seaborne iron ore was bound for China. Reuters reported this month that Refinitiv vessel-tracking data showed iron ore shipments to China had risen to 75.9 million tonnes in March from 71.4 million tonnes in February.
“It seems as though demand from China is holding up as work resumes there, with first-quarter [iron ore] imports at around 2019 levels and coal imports up over last year,” said Tim Huxley, managing director of Hong Kong-based Mandarin Shipping. Wah Kwong Maritime’s Fairclough said that iron ore was priced at a “strong” US$95 per tonne, and that there were signs that demand for the raw material was ramping up in China. He added that supply from Brazil was coming back online after unprecedented rainfall, helping to boost freight rates.
Freight rates for capesize ships have risen sharply over the past month. The latest data by shipping services provider Clarksons showed that the average capesize daily charter rates had risen from US$3,875 on March 27 to US$8,813 for the week of April 17, which is still relatively low. The average capesize charter rate for these classes was US$17,880 in 2019.
Another bulk cargo that shippers were paying particular attention to was logs, which China imports for use in form construction for cement, and is viewed as a gauge of future activity in the construction industry.
Shipping in choppy waters as coronavirus evokes 2016 slump, Hanjin bankruptcy
In an outlook report on the global construction industry published on April 20, Moody’s Rating Agency said the Chinese construction sector had resumed work on key infrastructure projects, and that mainland construction companies should recover lost domestic revenue in the remainder of 2020, thanks to increased government spending and order backlogs.
Rob Aarvold, general manager of Swire Bulk, The China Navigation Company, said that with fuel prices so low and log prices rising thanks to Chinese demand, there was an opportunity now for shippers to pick up logs in faraway Uruguay, rather than New Zealand, whose ports have been closed due to a Covid-19 lockdown. Wah Kwong Maritime’s Fairclough said that China’s stock of logs had fallen from a very high 7.3 million tonnes to an “exceptionally low” 1 million tonnes.
Covid-19 lockdowns are hurting the industry. Pacific Basin’s Bergland said there was a significant slowdown in North American activity, particularly in construction materials, which he said would have an impact ofn the region’s gross domestic product. This had also left freight rates at or below operating expense levels.
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Charter rates for handysize ships or smaller boats dropped by 9 per cent from US$5,592 to US$5,083 per day between April 10 and April 17. In the same period, the average charter rates for supramax vessels, slightly larger boats, fell from US$4,338 to US$3,763 a day, according to Clarksons. Bergland estimated that companies which have done long-term charters were paying owners between US$10,000 to US$12,000 a day.
Anders Liengaard, a dry bulk shipping specialist, said the industry had thousands of small operators that might be in financial trouble. But the dry bulk shipping business was used to big swings in freight rates, Wah Kwong Maritime’s Fairclough said.
