Conference: China’s commodities rush props up bulk shipping

A global association of bulk terminal operators says China is buying up every kind of commodity at a “mind-blowing” rate, with the country’s imports propping up an otherwise overall fall in trade volumes globally due to the COVID-19 virus. While this global vacuuming up of commodities by China is currently supporting bulk commodity shipping worldwide, speakers warned that China is rapidly building up its own “conveyor belt” as it seeks greater control over its own supply chain.

Bulk terminal operators and shippers were told this at a virtual conference organized on Oct. 28 to 29 by the Association of Bulk Terminal Operators. ABTO was formed in 2016 to combat what operators said was their underrepresentation in other international maritime organizations.

China at center of bulk universe

In an introductory presentation to kick off a series of seminars on the Impact of COVID-19 on Bulk Markets and Terminal Operations, Peter Sand, chief shipping analyst for the Baltic and International Maritime Council, said: “There is one nation at the center of the universe [for the bulk shipping industry] and that country is China … you see the impact of China and its stocking up of basically every kind of commodity, but for coal, it is mind blowing. And it is not only the volumes; it is also the distances. China is basically grabbing whatever it can from all over the world.”

Sand said that China’s “craving for agri-bulks,” in particular, is having a “very positive” effect on the dry bulk sector, which is shifting short haul trades to long haul trades.

“If we go by Suez Canal transit numbers, we have seen a 26% increase in the first three quarters of the year, I mean, that is mind blowing in many ways. It also illustrates the purchasing power of China. We know China has the muscle, but from the stimulus packages they have, it did not look as if the dry bulk sector would benefit to this extent. It is absolutely second to none.”

Chinese ‘conveyor belt’ to come

However, Sand warned that some bulk terminal operators and shippers may not benefit from the growth in trade volumes as China looks to establish what he called the “Chinese conveyor belt” China’s own fully formed supply chain. China’s Belt and Road Initiative includes massive investment in both maritime and overland infrastructure, including loans to nearby countries to build ports and other infrastructure that have come under criticism in those countries.

Commenting on trade relations with China, Sand said: “After three years of the trade war, the U.S. has seen the highest export of soybeans in its trading history. Following years of disruption, the first seven weeks of the 2020 / 2021 marketing year, which runs from Sept. 1 to Aug. 31, have seen the strongest exports ever.” The U.S. is now exporting 80% of its entire soybean production to China, he said.

In the day’s second presentation, Rahul Sharan, analyst at shipping consultant Drewry, informed ABTO members and delegates that dry bulk growth rates over the next five years could be similar to that recorded over the previous period, depending on individual countries response to COVID, but he also emphasized China’s importance in keeping bulk trades moving.

“As Peter was saying earlier, China is going to lead everything. We are expecting some growth in China’s food production and expecting improvements in iron ore imports to feed China’s steel mills and build up inventories,” he said.

Seagoing coal movements to China will decline, however, following the completion of a rail network between coal-rich Mongolia and Russia and China.

Stockpiling or consuming?

However, Ken Eriksen, senior vice president-agribusiness at IHS Markit, questioned whether China’s buying was really being stockpiled. “We do not see China stockpiling of grains and soybeans at the moment. Rather, there is a great price incentive to have the load discharged and moved to a feed position, with soybeans first going through a soybean crush plant. We anticipate China will stockpile or build inventories and its strategic reserves later, but not now; they are consuming it.”

He added, “Also, South America or Brazil specifically is essentially out of soybeans—the U.S. will export three to six vessel loads to Brazil, one vessel loading this week. And Brazil has been late planting its soybean crop, so that is bringing more business back to the U.S. However, based on our soybean production forecast released yesterday, the U.S. soybean crop was lowered such that it will leave U.S. 2020/21 soybean carryout historically low. China may accelerate soybean purchases to feed its system and hope Brazil can start harvesting any early soybeans in January or February and take those. We see continued corn buying and now possibly DDGS are becoming of greater interest.”

COVID and ‘just-in-time’ logistics

In the final ABTO presentation, Basil Karatzas, CEO of Karatzas Marine Advisors & Company, said that the impact of COVID-19 and its demand reduction could bring into question the “just-in-time” logistics model.

“When combined with ‘trade wars’ and ‘re-shoring,’ COVID-19 has the potential to impact negatively on the shipping industry because of the lower demand. It is a driver for re-thinking supply chains as a ‘just-in-time inventory’ is not a panacea anymore. COVID-19 is accelerating ESG and tough regulations, which will further increase the financial burden on shipowners, and favor large companies. Certain shipping segments, such as cruise ships and offshore drilling, may be facing an existential crisis.”

David Murray can be reached at [email protected].