Positive signals for dry bulk shipping from new China policy

The sluggish dry bulk shipping market may get a boost from positive signals coming from new Chinese policies under its new 13th Five-Year Plan (2016-2020) that includes “supply-side structural reform” aiming to eliminate “superfluous industrial capacity”, according to DNB Markets.

The shipping analyst said in a recent note that China’s new five-year plan should support commodity imports as the country intends to remove excessive and unnecessary industrial capacity.

In 2015, dry bulk shipping trade had fallen short of expectations mostly because of the lack of willingness to cut domestic mining output from China put pressure on marginal seaborne supplies of coal and iron ore.

This year, however, saw Chinese iron ore prices up 26% since the start of February. “The draft outline of China’s 13th Five-Year Plan included ‘supply-side structural reform’ for the first time, suggesting the market would play a decisive role in resource allocation, which had been disturbed by government interference, which in our view would support commodity imports,” DNB Markets said.

Since last year, Beijing has been shutting down inefficient and polluting factories particularly in the steel-making and coal sectors, removing excessive capacity.

In early-February, China’s State Council issued a guideline saying no new coal mines would be approved in the next three years and the country will shut down 500m tonnes of capacity and consolidate another 500m tonnes into the hands of fewer but more efficient mine operators in the next three to five years.

Meanwhile, DNB Markets also noted improved dry bulk scrapping activity comparing 2016 with 1986, which was a year of all-time high scrapping.

Up until 4 March 2016, the dry bulk fleet has seen scrapping of 10.1m dwt which on an annualised basis equates to 57m dwt or 7.4% of the fleet. These 57m dwt compares to 31m dwt scrapped in 2015 and DNB Markets’ estimate of 35.6m dwt of scrapping this year.

Posted 08 March 2016

© Copyright 2019 Seatrade (UBM (UK) Ltd). Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Seatrade.

Lee Hong Liang

Asia Correspondent

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