Production data for July shows slowing steel production hampering iron ore import demand, while immense coal production continues to support energy costs as evidenced with thermal electricity production ramping up. All in all, the data fails to provide support for dry bulk import demand for the time being.

Chinese steel production is following last year’s dive and was for July below the 5-year average at 82.4 MMT, down 4.2% YOY leading to a 6.2% decline YTD compared to last year. The raw material intensive pig iron production was 72.0 MMT for July, 6.7% down YOY and YTD now stands 4.2% below last year. The Chinese economy has seen a slowdown hampered by its zero-Covid policy and a declining property market, with recent figures indicating property investments and new sales declining 12.3% and 28.9% YOY, respectively. Consequently, the slowdown has led to China cutting the medium-term lending rate from 2.85% to 2.75% to combat the falling economic growth.

Chinese domestic coal production continues at elevated levels of 368 MMT for July. This is up 17.5% YOY and YTD growth has been up 13.2% from last year. High production is pressuring import needs which have been sluggish so far this year (YTD down 18.4% YOY).

However, the ample supply of coal has caused a wide price differential between Chinese and global coal prices and is incentivizing increased thermal electricity production. Overall electricity production was up 4.7% YOY for July and has YTD been up 2.7% compared to last year, while thermal electricity production was up 5.7% for July but is down 2.0% YTD. Furthermore, attractive economics for coal as fuel has also curbed Chinese LNG imports, which were down 22% YOY YTD as of June, while pipeline gas imports are up 11.4%.