All in all, economic activity in China appeared to improve in August, with recent data suggesting a downturn in growth may be stabilizing. Conversely, real estate data highlighted the challenges that still lie ahead.
With all segments reporting double-digit weekly gains, the general Baltic Dry Index concluded today at 1381 points. Following iron ore prices higher, the leading Capesize submarket covered some of the late August losses, balancing today at $13,284 daily. Brazil’s bounteous grain harvests, delays at the drought-stricken Panama Canal and increased congestion in East Coast South America have a positive bearing on the midsize bulker market, with Panamaxes and Supramaxes laying today at $14,906 and $13,426 daily respectively. Touching four-month maxima, Handysizes remained consistent on their upward trend during the thirty-seventh trading week, lingering this Friday at $11,420 daily.
Laden with positive vibes, iron ore markets seem to be in accord with the hot spot market of late. Buoyed by China's move to stimulate the world's second largest economy, iron ore futures reported their biggest weekly gains in months even as the country's steel output shrank in August. In particular, the world's largest steel producer churned out 86.41 million metric tonnes of the metal last month, down 4.8 month-on-month but up 3.2 percent year-on-year. Average daily steel output in August came in at 2.79 million tonnes, down from 2.93 million tonnes in July. Looking forward, the absence of any public announcement that the state planner will continue to cap steel output this year has injected moderate optimism in the iron ore and steel markets. However, the state-owned steel giant Baosteel recently stressed that the cap would continue.
On Friday, iron ore futures kept trending upwards, having their focus on the additional stimulus measures rather than the softish tone of the steel market. One day earlier, China's central bank said that it would cut the amount of cash that banks must hold as reserves for the second time this year to boost liquidity. The People's Bank of China stressed that it would cut the reserve requirement ratio by 25 basis points to circa 7.4 percent, following a similar cut in March. The move is expected to free up over 500 billion yuan ($68.71 billion) for medium to long term liquidity, an official at the central bank was cited by state media Xinhua as saying. Market participants believe that a weakening Chinese yuan has constrained the central bank's efforts to aggressively lower interest rates and thus authorities are trying to ramp up liquidity with alternative measures to support the economic recovery.
Further boosting market sentiment, China’s retail sales and industrial production grew faster than expected in August. During the previous month, the total value added of industrial enterprises grew by 4.5 percent year-on-year, 0.8 percentage points faster than that of the month before. In terms of sectors, the value added of mining increased by 2.3 percent year-on-year, manufacturing went up by 5.4 percent and the production and supply of electricity, thermal power, gas and water grew by 0.2 percent. In the first eight months, the total value added of industrial enterprises above the designated size went up by 3.9 percent year-on-year. In sync, the Index of Services Production increased by 6.8 percent year-on-year, 1.1 percentage points faster than that of the previous month. In the first eight months, the Index of Services Production increased by 8.1 percent year-on-year. In August, total retail sales of consumer goods reached 3,793.3 billion yuan, up by 4.6 percent year on year, 2.1 percentage points faster than that of the previous month, or up by 0.31 percent month-on-month. From January to August, total retail sales of consumer goods reached 30,228.1 billion yuan, up by 7.0 percent year-on-year. In spite of the overall favourable economic juncture, investment in real estate development took an 8.8 percent dive. The floor space of commercial buildings sold was 739.49 million square meters, down by 7.1 percent year-on-year.
All in all, economic activity in China appeared to improve in August, with recent data suggesting a downturn in growth may be stabilizing. Conversely, real estate data highlighted the challenges that still lie ahead. Against this background, whether the recent liquidity injection will suffice to turn things around in shipping is at least debatable. However, for the time being, it seems to be supportive to seasonal upturn of late.
Data source: Doric