The effects of Chinese sovereignism on the freight market / ANALYSYS
Genoa - In the first 11 months of 2018, in China total coal and lignite imports increased a strong 8.9 percent to 270.5 mln tonnes. Of this, imports of steam coal and lignite increased by 13.5 percent year-on-year to 209.4 mln tonnes.
Genoa - In the first 11 months of 2018, in China total coal and lignite imports increased a strong 8.9 percent to 270.5 mln tonnes. Of this, imports of steam coal and lignite increased by 13.5 percent year-on-year to 209.4 mln tonnes, while coking coal imports decreased by 4.2 percent to 61.1 mln tonnes. However, it is uncertain if 2018 full year imports will exceed the 2017 volume of 271.1 million tonnes, following the introduction of coal import restrictions in November and signals by the government to keep the year’s imports below 2017 levels. While import restrictions have since started to relax with the start of the new year – with waiting times for customs declarations to be completed at around 15 days now, compared to 30-40 days when restrictions were in force – China’s National Development and Reform Commission (NDRC) is said to be considering monthly coal import controls in 2019. The pursuit of monthly import controls instead of an annual quota is a sign that upside in coal import volumes may be more limited going forward, as the government seeks to increase domestic production while limiting falls in price. In 2019, domestic coal production is expected to increase by around 100 million tonnes. Indonesia and Australia dominate coal exports to China, accounting for 45 percent and 29 percent respectively of China’s import volume in the first 11 months of 2018. Over Jan-Nov 2018, total coal imports from Indonesia surged 11.7 percent year-on-year to 121.8 million tonnes, mostly from an increase in lignite shipments.
While Indonesia supplies mainly lignite which are of a low calorific value, they tend to be low in sulphur and trade at a large discount to higher-quality thermal coal from Australia. They are thus useful for blending with higher-sulphur domestic supplies and imports. On the other hand, Australian shipments fell 2.1 percent to 78.4 million tonnes, largely as coking coal shipments decreased with easing Chinese import volumes. Chinese coking coal imports have been falling this year, even as steel production increased 9.4 percent year-on-year over the same period to 851.4 million tonnes, likely due to Chinese mills requiring less coking coal as they increased scrap usage in steel making, some inventory run down due to high coking coal prices in 1Q 2018, and renewed coal import restrictions in November.
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Dry bulk fleet review
However, actual demolition activity would depend greatly on actual market performance, which could see an improvement this year as vessels are taken off the market for scrubber installation, but also faces the risk of dampened demand due to the U.S.-China trade war and slowing Chinese economy. Based on our current assumptions, the dry bulk fleet could grow around 3-4% this year.
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EU steel safeguard measures
Recently the European Commission revealed that EU member countries had approved final safeguard measures on steel, which would be implemented by 4 February and extend to July 2021. The measures are expected to come in the form of tariff-rate quotas, based on the average volume of imports over 2015-17 with an additional 5% added. Further steel imports above the quota would be subject to a 25% tariff, and major steel exporting countries would also face country-specific limits. The measures had been proposed in response to a surge in steel imports, with Eurofer estimating EU steel imports increased an unprecedented 12% in 2018. Over January-November 2018, Eurofer recorded EU steel imports had grown 12.2% year-on-year to 27.4 million tonnes, while steel exports fell 9.2% to 19.0 million tonnes. The rise in European steel imports have been attributed to U.S. tariffs of 25%, which were initially imposed in March on most countries, and then expanded to include the EU in June. With U.S. tariffs on Turkey then doubled to 50% in August, the measures have given rise to concern that steel volumes originally destined for the U.S. were being redirected to Europe, threatening European steelmakers as demand growth in the region slows.
In their previous quarterly review in October 2018, Eurofer forecasted the EU’s apparent steel consumption to rise by 2.2% to around 163 million tonnes in 2018, with growth expected to slow to 1.1% in 2019. With imports increasing by 12% in 2018, and exports also seeing a substantial fall, steel mills in the EU have at best only been able to deliver around the same amount of steel as in 2017. Austria and Germany were most affected in terms of steel production volume, falling 16.2% and 2.6% year-on-year respectively over this period to 6.3 million tonnes and 39.0 million tonnes. The EU’s latest safeguard measure appears set to target imports from Turkey and Russia, which will face country-specific quotas compared to previous provisional global quotas (which had meant that these countries could still ship more steel to the EU if their material arrived first).
Turkey steel shipments to the EU increased 66.6% year-on-year to 5.7 million tonnes over January-November 2018, while Russian shipments increased 58.5% to 3.4 million tonnes.