Chinese economy shows signs of slowdown

China’s PMI fell below 50 in March, signaling a slowdown in manufacturing and service activity. The manufacturing PMI fell from 50.2 in February to 49.5, while the non-manufacturing PMI was down to 48.4. The slowdown comes amid volatile commodity prices following Russia’s invasion of Ukraine and a renewed surge in COVID cases across China. Rising cases have triggered strict lockdowns and movement restrictions in many of China’s key manufacturing and port hubs. However, there has not been a material increase in dry bulk congestion in Chinese ports, which currently amount to 420 vessels. This is below the 2021 average of 457 vessels. The PMI surveys were taken prior to the worst COVID outbreaks, suggesting that a further decline is likely next month when the full impact of the lockdowns is incorporated. On March 30, state media reported that further support measures will be rolled out to stabilize the economy. Among these is ramping up production of several commodities, including coal and grain, to ease price constraints for end-users.

Germany activates emergency fuel plan

Germany has activated the first of three phases in its emergency energy supply plan, following the rejection of Russian demands that European countries should pay for natural gas in rubles. A crisis team has been formed to monitor imports and storage levels. If a significant fall in supply is observed, regulators could start rationing energy. Under the plans, households, hospitals, and other critical institutions would be given priority over less-essential sections of the economy. As a result, the German industrial sector would therefore feel the brunt of any rationing, including steel and aluminum production. According to the World Steel Association, Germany produced 40 MMT of steel in 2021, accounting for 26% of total EU production. In the first two months of 2022, German output totaled 6.4 MMT. With approximately 2/3 of German steel still produced in blast furnaces, which consumes more energy than electric arc, the sector would be particularly exposed to any energy shortages. The German steel industry imported 13.7 MMT of iron ore in 2021, mostly from Norway (27%), Canada (20%) and South Africa (21%). Rationing would also impact Germany’s aluminum industry, which imported 2.7 MMT of Bauxite from Guinea in 2021. Additionally, Germany’s energy-intensive automobile sector would likely be subject to rationing, pushing down demand for steel and aluminum. Germany also produces chemicals essential to many industrial production chains. The sector is highly reliant on natural gas for production, accounting for 15% of German consumption. The German Chemical Industry Association has warned that disruptions to German chemical production could trigger a “huge domino effect through almost all industries.”

Argentinian grain transporters union announces strike action

The Federation of Argentine Transporters union has announced a national strike of its grain transportation workers, to begin at midnight on Monday April 11. The union claim that grain freight rates have not been adjusted appropriately, given the large rise in fuel costs. The union is also demanding improved security in the vicinity of ports and better infrastructure on port access routes. The announcement added that the strike will continue indefinitely until demands are met. With global agriculture markets already under significant pressure following the absence of Black Sea volumes, such a major disruption to Argentina’s grain supply chain could cause an even greater rise in prices. While most of the region’s wheat has already been exported, the country’s corn and soybean crop is currently being harvested and is likely to be most affected by this development. As of March 30, Argentina’s 2021-2022 corn harvest was 14.4% complete with 6.26 MMT harvested, according to the Buenos Aires Grain Exchange. Given the lengthy transportation times from farm to port, any disruption in exports will only be seen in the weeks following. A prolonged strike could cause a large buildup of vessels near the main exporting ports of Argentina, namely in Parana, as vessels wait for the dispute to be resolved. Farmers themselves have also been affected by the rising fuel costs for tractors and other equipment, particularly as corn and soybean harvesting commenced in the past month.