SIMIC

The drop in ore demand for steel production has led to an increase in inventories at ports and steel mills, a factor which will delay any recovery in China’s import demand, said Bimco.

“With China accounting for 71% of total iron ore trade, and iron ore accounting for 74% of cargo handled by Capesizes, this slowdown has greatly affected the segment. The Baltic Capesize Index has remained volatile so far in 2022, peaking on 23 May at 4,602 points followed by a sharp decline during June to an average of 2,518 points,” said Niels Rasmussen, Chief Shipping Analyst at Bimco.

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A 1.0% drop in the area of real estate under development in the first five months of the year contributed to lower demand as housing construction is a significant driver of Chinese steel demand.

Simpson Spence Young (SSY) noted earlier this year that some Chinese steel production was curtailed earlier this year to limit pollution during the Beijing Winter OIympics. SSY also predicted a loosening of real estate market restrictions which happened in April.

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In another move to jumpstart the economy, the Chinese government has accelerated the issue of special purpose bonds, issuing the majority of its 2022 quota of 3.6 trillion Yuan in the first six months of the year.

“In addition, China’s Ministry of Finance is considering issuing an additional 1.5 trillion Yuan out of their 2023 quota in the second half of the year in order to boost growth. As most of these bonds are allocated to infrastructure projects, if the government approves this additional stimulus, the Chinese steel sector should recover in the second half of the year,” said Rasmussen.