The surge in Chinese steel exports is boosting shipping demand for finished steel products. However, this dominance negatively impacts other steel producers, leading to decreased domestic steel production and reduced demand for iron ore and coking coal, key dry bulk cargoes. While shipping Chinese steel products increases demand, the decline in demand for these dry bulk commodities presents a downside risk for the dry bulk shipping sector, reports Drewry.
Changing Trade Patterns
Mexico’s steel exports to its top trading partners (US, Canada, and Colombia) declined for the second consecutive year. Conversely, China’s exports to these destinations witnessed significant growth.
Similarly, Japan’s exports to South Korea and Thailand contracted, while China further expanded its market share in these regions.
China’s steel exports to key markets like Vietnam, UAE, Saudi Arabia, and Brazil more than doubled in 2024 compared to 2022. This significant growth has resulted in India and Brazil emerging as prominent steel trading partners for China.
China’s expanding steel exports, particularly to long-distance destinations like Saudi Arabia, the UAE, and Brazil, have significantly influenced global shipping demand. While overall global steel trade’s contribution to dry bulk shipping demand increased marginally, China’s contribution saw a notable rise, expanding from 2.8% in 2023 to 3.4% in 2024.
This growth is further amplified by the strong linkages within China’s steel economy, as evidenced by Indonesia’s significant increase in steel exports to China.
These trends underscore the solidifying role of China in the global steel industry and its increasing influence on dry bulk shipping demand.
Marginal Decline
While China’s increased steel exports have boosted shipping demand, they have also negatively impacted steel production in other major economies. The influx of cheap Chinese steel imports has eroded market share for producers in countries like Japan and South Korea, leading to a decline in their domestic production. The EU, despite a marginal production increase in 2024, still operates below its five-year average due to the impact of high energy costs and competitive pressures from Chinese imports.
The impact on shipping is twofold. On the one hand, increased Chinese steel exports, particularly to long-distance destinations, have driven up demand for dry bulk vessels, particularly sub-capesize vessels. This growing demand from China provides a positive outlook for shipping stakeholders.
On the other hand, the decline in steel production in major economies like Japan, South Korea, and the EU has led to a decrease in demand for iron ore and coking coal imports. While China’s imports of these raw materials have increased, the overall demand from major steel-producing nations has contracted, negatively impacting dry bulk shipping demand.
Way Ahead
While China faces increased trade barriers like import tariffs in the US and EU, its steel exports are likely to continue expanding to regions like the Middle East and Brazil, where growth potential is higher. Despite these barriers, Chinese steel remains competitive due to lower production costs.
While steel production in advanced economies declined in 2024, the outlook for 2025 appears more promising. Improving sentiment in upstream sectors and reduced borrowing costs are expected to boost domestic steel production in these economies. This increased domestic production will also lead to higher demand for steel-making inputs like iron ore and coking coal.
China’s growing dominance in the steel market has a dual impact on shipping. Increased long-distance exports from China drive demand for dry bulk vessels, particularly sub-Capesize ships. However, the decline in steel production in other major economies, due to competition from Chinese imports, has reduced demand for iron ore and coking coal imports, negatively impacting dry bulk shipping demand from these regions.
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Source: Drewry
