Last month, the International Monetary Fund has emphasized that geoeconomic fragmentation could exert pressure on global trade and income growth in the forthcoming years. Data reflecting bilateral goods trade before and after Russia’s invasion of Ukraine substantiate that fragmentation is already in progress. Trade among economies situated in politically distant blocs has decelerated more noticeably than trade among those within blocs. Another facet of this fragmentation is the weakening trade ties between China and the United States. Since the initiation of trade tensions between China and the US in 2017, accompanied by escalating tariffs on bilateral trade, China’s portion of US goods imports has diminished by nearly 8 percentage points. Concurrently, there is evidence suggesting that US sourcing has been partially redirected away from China and towards other nations during the period spanning 2017 to 2022, including Mexico and Vietnam. Against this backdrop, world trade growth, overall, is forecasted to reach 3.0 percent in 2024 and 3.3 percent in 2025, marking a downward revision of 0.3 percentage points for both years compared to the projections made in January 2024.
The trade war between the United States and China intensified this week with a new development amid the ongoing presidential race. On Tuesday, U.S. President Joe Biden announced an increase in tariffs on various Chinese imports, amounting to $18 billion. In an official statement, the White House explained that President Biden’s economic strategy aims to bolster investments and generate quality jobs in sectors crucial to America's economic future and national security. The administration cited China’s unfair trade practices related to technology transfer, intellectual property, and innovation as significant threats to American businesses and workers. Moreover, China’s practice of flooding global markets with artificially low-priced exports further exacerbates the issue. To address these unfair practices and mitigate their impact, President Biden has instructed his Trade Representative to raise tariffs under Section 301 of the Trade Act of 1974.
Regarding international steel trade, the Chinese steel industry has expressed strong opposition to the U.S. practice of politicizing and weaponizing steel trade, according to the China Iron and Steel Industry Association (CISA) on Thursday. In addition to existing tariffs under Section 301, the United States announced new tariffs on Tuesday, affecting various imports from China, including steel and aluminum products. The tariff rate on certain steel and aluminum products will rise from 0-7.5 percent to 25 percent this year. CISA emphasized that China's steel sector excels globally in areas such as plant design, process flow, technical expertise, manufacturing capacity, product quality, and energy efficiency. Furthermore, Chinese steel companies have made substantial investments in ultra-low emission transformation projects to comply with the world's strictest environmental standards.
In 2023, China produced 1.019 billion tonnes of steel, reflecting a 0.6 percent increase from 2022. During the same period, China's steel product exports rose by 36.2 percent year-on-year, reaching 90.3 million tonnes. As domestic demand remained weaker than expected, China's steel exports in March surged by 25.35 percent compared to the previous year, totaling 9.89 million tonnes – the highest monthly volume since July 2016. This increase brought the first-quarter exports to 25.8 million tonnes, marking a 30.7 percent rise year-on-year, according to customs data. In April, the upward trend continued with steel exports climbing 16.3 percent year-on-year to 9.22 million tonnes. From January to April, the world’s largest steel producer exported a total of 35.02 million tonnes, a notable 27 percent increase compared to the same period the previous year. Despite these substantial export volumes, the share of China's steel exports to the United States remains minimal, as does the proportion of US steel imports from China.
While China was exporting large volumes of steel, India's coal imports were on the rise. In FY24, India's coal imports increased by 7.7 percent to 268.24 million tonnes, driven by lower seaborne prices and an expected rise in power demand during the summer. In March 2024, non-coking coal imports reached 15.33 million tonnes, up from 13.88 million tonnes in March FY23. Coking coal imports for March 2024 were 5.34 million tonnes, compared to 3.96 million tonnes a year earlier. For the entire FY24, non-coking coal imports totaled 175.96 million tonnes, exceeding the 162.46 million tonnes imported in FY23. Coking coal imports amounted to 57.22 million tonnes in 2023-24, up from 54.46 million tonnes in 2022-23. Looking forward, India's power ministry has instructed thermal plants to defer planned maintenance and revive plants that are under long-term outages to prepare for peak power demand expected in May and June, according to an official statement on May 11.
Against this background and in spite this week soft tone, the Baltic Supramax index has reported a quite solid year to date average of $13,768 daily, or 26.2 percent higher year-on-year. Even if it compares to the average of 2018-2022 which include the exceptional post-covid years, the current year's performance trails only slightly in daily earnings. Moving forward, the Baltic Supramax index's sustained health hinges on increased coal activity from India effectively offsetting the anticipated softness in China’s coal market.
Data source: Doric