6 February 2024 (Lloyd's List) - THE auspicious Year of the Dragon, symbolising prosperity and success in Chinese zodiac, is just around the corner. But will shipping need greater courage and stronger conviction to keep banking on China?
Economists reiterate calls that began mid-last year urging Beijing to unleash larger stimulus, despite China marginally surpassing its 2023 economic growth target. These appeals are not unfounded, as worsening property market woes and fragile consumer and investor confidence are just part of the many concerns.
Yet shipowners may not despair, as shipping market strength — at least in the short-term — depends on many other factors beyond economic fundamentals.
Last year exemplified this. Although the much-anticipated vigorous bounce back in China’s GDP quickly lost steam after just one quarter, the freight market relying on the world’s second-largest economy did not then collapse.
Instead, unexpectedly robust Chinese demand for iron ore, coal and crude oil ensured decent, if not stellar, earnings for ships transporting these cargoes.
While construction slumped, rapidly growing auto manufacturing and exports helped shore up domestic steel output and appetite for raw materials. Unverified speculation even linked increased Chinese iron ore imports to needs for accelerating growth in the military industry.
Record overseas coal purchases were largely driven by domestic hydro power shortages and government policies, such as cutting tariffs, to incentivise imports.
Some of these dynamics will likely persist over the next 12 months, while others may shift.
Although news that Evergrande, once China’s biggest property developer, was ordered by a court to be liquidated heightened concerns over the market crisis, secondhand capesize bulker sales and purchases have been exceptionally hot recently, according to shipbrokers. “Ship prices are up 15%,” said one based in Hong Kong.
This implies some shipowners still expect solid Chinese demand, plus external disruptions, like more capesizes skirting the Cape of Good Hope from Australia to Europe.
Other key shipping sectors, including containerships and tankers, are also reaping freight premiums from the unforeseen Red Sea security crisis — an unpredictable event a year ago, even as many predicted growing geopolitical uncertainty would become a major, if not the most powerful, shipping market influencer.
While the Middle East and Ukraine situations remain ambiguous, some are looking ahead to November's US presidential elections.
The outcome is still far from certain, but Republican front-runner Donald Trump appears eager to ignite a US-global trade war — especially with China. His isolationist foreign policy leanings also raise concerns he could further destabilise the already shaky international order.
How this will impact shipping (boon, bane or both?) is anyone’s guess. And China’s role will be intriguing, as the largest manufacturing exporter and energy/commodities importer globally, as well as a power from which the West increasingly seeks to “derisk”.
Sanctions, trade dislocations and rerouting certainly boost tonne-mile demand and offer short-term windfall profits for daring shipowners. But if tensions escalate and plunge the global economy into recession, the gains would be fleeting.
In Chinese culture, the dragon, which can command winds and rains, is also considered capable of bringing peace and harmony to the world. The hope is that some of that auspicious wish translates into reality, and that shipping’s repeatedly tested resilience can be stretched a bit further before more predictability arrives.
