China as an importer and Australia and Brazil as exporters share the iron ore market

RIO DE JANEIRO, BRAZIL – Unsurprisingly, the structure of the seaborne iron ore market continues to be governed by two key suppliers: Australia and Brazil; and one dominant buyer: China.

Despite tensions between the first two, which led Beijing to cut off Australian coal supplies effectively, it is clear that, for the foreseeable future, the Chinese steel industry will remain unable to divest itself of higher quality overseas iron ore supplies, notes the weekly BRS Dry Bulk report.

According to the report on a year-on-year basis, the volume of iron ore shipped by sea to China fell by 72 million tons (6%). Given the sudden halt in Chinese steel mills’ crude steel production growth since 3Q21, the magnitude of this decline was reasonable.

IRON ORE AND STEEL

China’s reduced appetite was fortunately cushioned by a simultaneous increase in steel production (thanks to healthy margins) elsewhere around the globe. Overall, seaborne imports from Japan, South Korea, Taiwan, the Netherlands, and Germany increased by 29 million tons, from 228 million tons to 257 million tons (13%).

In addition, after suffering persistent supply bottlenecks and restrictions, Brazilian supplies managed to give themselves a break in 2021, rebounding from 329 million tons to 345 million tons (4.9%), injecting some much-needed ton-miles into the Capesize market.

COAL

Coal trade dynamics experienced a massive readjustment in 2021, as suppliers and buyers readjusted to new realities, while shipowners of various sizes benefited from this.

In the absence of Australian coal, China became heavily reliant on just two suppliers – Indonesia and Russia.

With an energy crisis due to increased industrial activity and domestic supply shortages, China’s year-on-year seaborne import volumes increased from 248 million tons in 2020 to 288 million tons in 2021, even surpassing 2019’s record 274 million tons.

It provided an essential source of employment for Panamax and Supramax vessels in the Pacific Rim, where Japan, South Korea, and Taiwan collectively added 24 million tons of demand in 2021.

Unfortunately, India, which had been touted as an alternative buyer for Australian coal, extended the downward trend that has been evident since 2019 and consequently recorded a year-on-year decline from 214 million tons in 2020 to 197 million tons in 2021. It affirms India’s role as a price-sensitive coal buyer and not necessarily a reliable customer.

Vietnam was a further disappointment. It had previously been seen as a star performer, as its imports tripled from 17.4 million tons in 2018 to 53 million tons in 2020. However, this positive momentum dissipated when the country got bogged down with the COVID pandemic.

Coal exports in the Atlantic Basin, mainly from the US and Colombia, increased by 20 million tons, an excellent boost to ton-miles. On the other hand, South Africa could not take advantage of high prices, as its exports slowed due to security issues and lack of rail capacity.

GRAINS

Grain trade flows are more complex than iron ore and coal, reflecting more participants on both sides (especially buyers).

Consequently, according to BRS Dry Bulk, this offers more options for vessel repositioning throughout the year.

In 2021, China maintained the top position in seaborne grain imports, receiving substantial volumes during 1H21 due to the impact of strong 2020 demand from a recovering swine herd following African swine fever and its accession to the Phase 1 trade agreement with the US.

The emergence of Australian grains provided employment in terms of volumes and repositioned options from Southeast Asia to the Indian Ocean region.

Unfortunately, this momentum slowed in 2H21 following the collapse of pork sector margins and the disruption of US exports due to Hurricane Ida (August 26 to September 4, 2021), leveling off the net change in volumes on a year-on-year basis, but maintaining record import volumes.