“Looking forward, Chinese households have accumulated $2.6tn of bank deposits last year alone, feverishly heating the pent-up demand engine and building higher expectations for the months to come.”
In a typical spiritless Q1 week, the Baltic Dry Index trended downwards, concluding today at 676 points last seen in early June 2020. Losing another 32 percent on a weekly basis, Capesizes balanced this Friday at $4,433 daily. Finishing the fourth trading week above their intra-week lows, the mid-size segments moved mostly sideways, with Panamaxes and Supramaxes laying at $9,487 and $7,150 respectively. Losing further steam, Handysizes stood at $7,763 daily, remaining almost unchanged though at these levels during the last three days. Being trapped in a downward spiral since June, the recent course of the BDI injected scepticism and uncertainty in the dry bulk sector.
On the same wavelength, the IMF stressed this week that global economic uncertainty remains elevated, weighing on growth. The IMF’s World Uncertainty Index fell in the last two of months, but has continued to hit elevated levels in recent times on the back of successive shocks, including most recently Russia’s invasion of Ukraine and the associated cost-of-living crisis. By decomposing the uncertainty index, the main drivers have evolved over time. Uncertainty jumped following the United Kingdom’s unexpected vote to leave the European Union. It soared even further after the surprise outcome of the 2016 presidential election in the United States, escalating US trade tensions with China. Another big spike followed in early 2020 with the onset of the coronavirus pandemic, followed less than two years later by another shock from Russia’s invasion of Ukraine and renewed trade uncertainty associated with the risk of geoeconomic fragmentation, according to the Fund.
Whilst pandemic-related disruptions are no longer the main driver of economic uncertainty, according to IMF’s Index, they certainly have had a negative bearing on China’s macroeconomic data. China’s economic growth slowed sharply in the fourth quarter of 2022 to its second-lowest record in at least four decades, being under pressure from stringent Covid curbs, and a real estate slump. Retail sales and industrial production growth further softened by 0.2 percent and 3.6 percent respectively year-on-year, compared to a record of 12.5 percent and 9.6 percent rise subsequently back in 2021. In reference to international trade, exports from China took a 9.9-percent dive in December to USD 306.1 billion after declining 8.7 percent during the previous month. In sync, imports to China tumbled by 7.5 percent year-on-year in December to USD 228.07 billion. Marking its first drop since 1999, real estate investments in China plunged by 10.0 percent year-on-year over the course of 2022. In sharp contrast, electricity production in China reached 757.9 billion kwh in December, or up 3.0 percent year-on-year. From January to December, power generation came at 8.4 trillion kwh, up by circa 2.2 percent on an annual basis.
As far as the dry bulk seaborne commodities go, during the currency of 2022, China imported 1.10 billion tonnes of iron ore, down 1.5 percent year-on-year.
China’s struggling property sector and sluggish economic activity had a negative bearing on steel margins, decreasing appetite for iron ore imports. In tandem, coal shipments to China reached 293.2 million tonnes during the previous year, down 9.2 percent from a year earlier, as the world’s largest coal consumer boosted domestic coal production. China's 2022 soybean imports were 5.6 percent lower than the year before at 91.08 million tonnes, according to official data from the General Administration of Customs. Total imports of grains such as soybeans, corn, wheat, barley and sorghum were 146.9 million tonnes in 2022, according to the General Administration of Customs. China’s strict Covid lockdowns eroded domestic demand, particularly from the stockfeed industry.
Whilst all the aforementioned have already been priced into current discouraging Baltic indices, market narrative for China's appetite for commodities has largely shifted from what was a softish 2022 to expectations of a vivid 2023. Looking forward, Chinese households have accumulated $2.6tn of bank deposits last year alone, feverishly heating the pent-up demand engine and building higher expectations for the months to come.
Data source: Doric