China recently announced a new economic stimulus package that includes interest rate cuts, a reduction in the reserve requirement ratio, and structural monetary policies. This is the first time these measures have been implemented together. The goal is to revive the property sector, which has been a major contributor to China’s economic growth in recent years, according to Breakwave Advisors.
Stimulus Package
Although China’s stimulus package should boost its economy by uplifting consumer and investor confidence in the property market, it should also support the dry bulk market. Boosting the property sector in China usually supports demand for key raw materials (iron ore and coal) given the influence of real estate in steel demand. Indeed, the country relies heavily on coal for energy generation (about 70% so far this year for instance) in both the private and industrial sectors. Meanwhile, iron ore is the main ingredient of steel production, of which the property sector consumers a significant amount.
Considering the above, it is logical that China’s stimulus package should support dry bulker demand and thus freight rates. This is even more true for the Capesize segment since iron ore and coal account for more than 90% of Capesize cargoes.
Nevertheless, it seems that confidence is lacking since homebuyers, investors, as well as consumers, are reported to be hesitant without additional effective policies. Especially when the Minister of Finance gives nothing but his words as he’s announces a “significant increase” in debt to promote economic activity without giving further details of when or how. It appears that property market participants will not be lured by incomplete statements and thus economists believe a tremendous additional fiscal stimulus package is required to properly boost the nation’s stuttering economy.
Iron Ore And Coal Volumes
Global seaborne iron ore and coal volumes increased by 4.2% and 1% y-o-y so far this year. When looking at Capesize trades, the segment has transported almost 4% more than it did a year ago throughout the first nine months of the year. Much of this support has stemmed from China which has accounted for about 70% of the volume transported by the segment so far this year.
As a result, the Capesize time charter average assessed by the Baltic Exchange has averaged $24,000/day so far this year, significantly higher than $16,389/day averaged in the same period of 2023. Nevertheless, the year did not start on a usual pattern for the Capesizes given that they began the year extremely strongly as the end-2023 momentum was carried through, which itself stemmed from the additional ton miles generated by the Red Sea crisis.
Although the end of the year is usually a strong period for Capesizes given that it coincides with the post-holiday period in China and beginning of winter, it seems there is little room for volumes to tick higher across the remainder of the year. Indeed, strong imports so far this year have resulted in ample iron ore stocks at ports. Iron ore port inventories have gained 20 mln mt since the beginning of the restocking since November 2023.
Did you subscribe to our daily Newsletter?
It’s Free! Click here to Subscribe!
Source: Breakwave Advisors
