The ongoing energy transition is significantly impacting dry bulk shipping and commodity consumption in China through shifts in energy demand, new industrial processes, and trade flow patterns. China’s aim is to accelerate the transition to a net-zero economy by 2060. With the COP28 climate summit now in the rearview mirror it is pertinent to take stock of the current trends in energy consumption and supply and consider their impact on dry bulk shipping.
The incoming Trump administration with a “concept of a plan” and judged on its past records does not support climate action to reduce greenhouse gas emissions. China on the other hand has a key role to play in the fight against climate change since it is also the world’s largest carbon emitter. shipowners and charterers are increasingly looking to China not only as a driver of the energy transition, but since its shifting economy is also generating opportunities for the dry bulk sector. Notably, China is a leader in clean technology production, with a major share in the global solar industry which requires increased bauxite imports to make alumina. Furthermore, its booming production of electric vehicles (EV) which rely on bulk commodities such as nickel ore, salt, manganese ore and lithium for batteries, its also driving dry bulk demand.
Bulk Coal: A black cloud overshadowing a brighter future
Despite the surge in electricity generated by renewables, coal remains a major component of the global energy mix. However, the geographic distribution of its demand is shifting. While coal demand is declining in the United States and could possibly decrease in the European Union this year, global coal consumption still rose by 1.4% in 2023, to a record 8.5 bln mt. Indeed, the International Energy Agency (IEA) projects coal consumption to peak in 2024 and start to decline from 2026 onwards.
As the world moves towards cleaner energy, coal demand is expected to decline. This is especially relevant for China, the globe’s largest coal consumer where coal remains king of its energy mix. However, China has committed to carbon neutrality by 2060. Furthermore, China’s energy-related emissions are expected to peak in 2025 according to International Society for Energy Transition Studies, initiating a gradual decline thereafter. One of the catalysts of this will be as the costs of solar and battery technologies decline, thereby accelerating the shift away from coal and slowing oil demand growth.
China’s coal trade accounts for circa 20% of the total dry bulk tonne-miles. In 2023, coal imports hit 474 mln mt. In China, 79% of thermal coal is used for energy generation while the remaining 21% is coking coal used in steel production.
In 2023, global seaborne coal volumes grew by 6.7% y-o-y to hit 1,347 mln mt. Data from AXSMarine show that China’s total coal imports surged by 34% in 2023. Furthermore, so far in 2024, China’s share of global coal imports stands at 31% compared to 21% in 2020. This demonstrates the increasing importance of China’s energy demand as a driver for the bulk market.
There are indicators that coal is on its way out the door. Over the past few months, coal burning at Chinese utilities in its coastal provinces, which mainly run on imports. Moreover, Reuters reports that, this year, the power grid is on track to reduce coal's share in China’s annual electricity generation to
below 60% for the first time. If achieved, this will be a milestone in its efforts to transition away from fossil fuels.
When comparing its official custom and seaborne trade data, China’s share of seaborne cargo declined to 76% of coal import in 2024, from an average 93% of coal imports in 2015-22. This discrepancy is explained by the growth of overland transportation volumes from Mongolia and Russia, which is weighing down on Capesize and Panamax segment because it curbs growth in tonne-mile demand. Whereas for the 704 ships that fall within the older average aged vessels of Post-Panamax (85-100,000 Dwt) to Baby- and SmallCape (100-160,000 Dwt) coal represents a combined tonne-miles demand share at around 65%. Hence any reductions in coal volume will be acutely felt.
Meanwhile, the share of coal in the Supramax (50-60,000 Dwt) segment’s cargoes has fallen from 15.5% to 13.4% in 2023 y-o-y according to AXSMarine data. Global tonne-miles by commodity show that for the Supramax segment there are various opportunities for the increased transportation of other commodities related to the energy transition such as to supply the materials needed for battery production.
The energy transition is steadily creating opportunities for dry bulk shipping. China’s domestic focus on renewable energy infrastructure. Transition technologies like wind turbines, solar panels, and EV batteries require aluminium production from bauxite imports from West Africa and other raw materials such as lithium, cobalt, nickel, and copper. This shift could increase the demand for these minerals thereby boosting dry bulk shipments for mining products to China, thereby drive demand for geared segments sizes.
Steel trades of the future: Cleaner, Stronger, Greener
China is the world’s largest producer and consumer of steel with crude steel production of about 1 bln mt in 2023, a slight decrease compared to the previous year. In the context of the energy transition the country needs to look to invest in new forms of steelmaking, which will reduce traditional lower-grade iron ore and coking coal imports over time.
The country’s steel output from January to September this year was 769 mln mt. This number is down 3.6% y-o-y since domestic demand is subdued due to the ongoing slump in the country’s construction and the real estate sectors. The oversupply of steel has led an uptick in China’s steel exports, which in September totalled 10.2 mln mt, representing the highest level since July 2016. Indeed, the overall exports in the first ten months of 2024 were up 21.2% y-o-y hitting 80.7 mln mt according to official customs data. This outflux of cheap Chinese steel has supported the Far East geared tonnage market, in particular backhaul legs to Europe. However, there has been a backlash against cheap Chinese steel that is hampering its outlook.
Last year, the EU’s Carbon Border Adjustment Mechanism (CBAM) was introduced. This involves a three-year phase in period and will be fully effective from 2026. CBAM requires EU importers of certain carbon-intensive products to purchase certificates reflecting the carbon emissions of those products. Sectors covered in the first phase of the new regulation include cement, iron and steel, aluminium, fertilizers, electricity, and hydrogen. This is seen as a further incentive for China to develop its green steel capabilities in order to remain competitive in international markets.
The iron ore content needs to be higher in green steel making, which is shifting from traditional blast furnaces (coking coal-intensive) to Electric Arc Furnaces (EAF) using more scrap steel and electricity. Moreover, hydrogen-based direct reduced iron (DRI) is also gaining traction as a low-emission alternatives. Demand may also decrease as EAFs use more scrap steel, reducing the need for primary iron ore imports. Thereby any decline in trades like coking coal and iron ore usually sourced from Brazil and Australia could lower demand for Capesize and Panamax vessels as this transition takes accelerates.
Construction material exported from China has seen a taste change as the country is a major exporter of slag (a byproduct from steelmaking), which is applied in cement productions and construction. According to data from AXSMarine, China’s export volumes of slag compared across 1Q to 3Q grew from 200,000 in 2020 to over 5 mln mt in 2024, with the largest jump of 858.8% y-o-y in 2023 as countries seeking eco-friendly and cost-effective construction materials drove demand for slag, particularly as a substitute for clinker in cement production. China’s involvement in projects under the Belt and Road Initiative may drive demand for construction materials exports.
In conclusion, while the global energy transition poses challenges for traditional dry bulk commodities like coal and iron ore it is creating opportunities in minerals and agricultural products critical for renewable energy technologies. China’s raw material consumption patterns will adapt as its energy and industrial policies evolve thereby reshaping trade flows and dry bulker demand. However, opportunities exist for shipowners willing to adapt to new cargo types, such as green steel and comply with more stringent decarbonization regulations.