The demise of the Chinese real estate market has caused a ripple effect in the dry bulk shipping market. In its latest weekly report, shipbroker Allied Shipbroking said that “the dry bulk shipping market has been on an overall downward trajectory since its post-summer peak in early October. Nowhere has this been more troubling than in the Capsize market where rates have been particularly subdued and underperforming. This has been primarily based on the softer performance of the iron ore trade this year, with the slump in demand in China having driven a severe breakdown in the overall market balance.
According to Allied’s George Lazaridis, Head of Research & Valuations, “the main weakness in the market has been the drop in China’s real estate sector, with investments in 2022 having already noted a decline of close to 10% compared to the same time frame in 2021. Construction accounts for more than a third of local demand for steel in China. The turbulence that has been noted since the Evergrande default on its debt payments and the continued COVID-lockdown disruptions observed since, have had as a consequence a property market that has been on the verge of collapse. The main criticism of previous weeks had been that during the Communist party congress in October, little reference was made as to any significant measures to be rolled out in order to support the frail real estate sector”.
Mr. Lazaridis added that “all this seems to have changed this past week, with regulators issuing a major plan to boost this sector. Amongst these were measures to assist financial firms in addressing the liquidity crisis noted amongst real estate developers, the easing of down-payment requirements for homebuyers as well as allowing real estate developers greater access to money from home presales. These new measures seem to be quite meaningful, with markets having already shown a positive shift in their wake, yet worries still abound that the headwinds the industry faces are too big and that these measures may have been too delayed. On the positive side, these measures have been taken concurrently with a shift in the way Beijing will look to tackle COVID outbreaks moving forward”.
“Despite the fact that the country is still battling several new outbreaks of the coronavirus, they have decided to loosen restrictions through incremental shifts, starting with a shortening of quarantine for people who have come in close contact with an infected person as well as easing on traveling. Although this isn’t a major shift, it has helped ease concerns in the market and many are seeing a potential for a slight revival in consumption levels. Given all the above, as well as the fact that iron ore inventories are currently at relatively low levels, the expectation is that we may see some support emerge over the final days of 2022, with November already showing a better performance in terms of iron ore loadings compared to 1 month prior. Steel mills have already started to increase production, while the price of iron ore in both the physical and paper markets have shot up”, Allied’s analyst said.
He concluded that “any further compounding improvement to be noted over the next few weeks would help alleviate the market, to some degree, from the downward pressure it has been under during the past few months and could possibly even go as far as providing meaningful support for a considerable improvement to be noted in terms of freight rates. It is too early to tell as to what degree and how quickly the market can recover over the next 2 months, especially when considering the fact that in late January 2023 we are likely to face a temporary stall as China begins its seasonal Lunar New Year festivities. However, all this may help expedite the overall market effect, urging steel mills to make up for lost time and ramp up their overall production much quicker”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide