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China’s declined steel production did not affect shipbuilding

If there is any affected sector, it would still be building and construction

The world is concerned over plummeted demand for iron ore in China after the latter’s decision to cut steel production. Freight rates for large bulk carriers reportedly fell more 90 per cent from 2021’s peak amid sharply lower demand for iron ore from the world’s largest steel producer.

A big drop
The capesize spot rate for the largest dry cargo ships dropped to US$5,826 per day as at end of January 2022, the lowest in 20 months. It is a stark contrast of prior rates exceeding US$80,000 per day. The drop in Chinese steelmaking resulted in both a slowdown in the overall economy, and environmental concerns over blast furnaces. While the capesize spot rates recovered to about US$10,000 per day recently, it is below the break-even rate for shippers, which was around US$20,000 per day.

The Baltic Exchange’s dry bulk sea freight index also fell to 1,296 at one point in January 2022, marking a 13-month low, implicated by the capesize market. China suffered significant port disruptions in mid-2021 owing to a combination of COVID-19 and bad weather. That in turn limited the availability of bulk ships and sent prices soaring. However, IHS Markit revealed the number of stalled ships waiting off the shores of China had reduced by 40 per cent – signaling an easing of capacity constraints.

The real reason
Yet, another report revealed what appeared to be the explanation behind China’s drastic scale back. The government pledged to wean off imports while streamlining production quotas for rare earth and tungsten. In the 2021-25’s raw material development plan, authorities said iron self-sufficiency would be “significantly” increased by lifting the supply of scrap steel to more than 30 per cent of the total, encouraging domestic mining and reducing steelmaking capacity.

“The raw material industry is the foundation of the real economy and a basic industry that supports national economy development. It is a key area to gain international competitive advantages,” the plan jointly drafted by the Ministry of Industry and Information Technology (MIIT), the Ministry of Science and Technology, and the Ministry of Natural Resources wrote.

Building apartments and infrastructure require steel, and steel requires iron ore. If Evergrande (building conglomerate) was allowed to fall, it reflects the importance China placed in building and construction. To date, there had been zero reports about China’s newbuildings sector. Therefore, the self-sufficiency is apparently dedicated to protect its shipbuilding industry.

Marine Online News Team
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