Overall, it is becoming easier to be more bullish for the Chinese steel/iron ore complex and for the Chinese economy in general. China’s steel output has now risen to the highest level since late June and is also now finally experiencing year-on-year growth. Much of the global economy outside of China continues to contend with significant weakness, but several pockets of the Chinese economy are continuing to fare well, which has been helpful for the dry bulk market recently. Also helpful were typhoon Muifa and Nanmadol last week, which again caused temporary vessel supply disruptions in Asia.

Decrease in Chinese Steel Prices

The average price of hot rolled coil in China ended last week at 4,140 yuan/ton ($591), which is 15 yuan less than a week ago. Previously, steel prices had increased during six of the prior eight weeks.   On a year-on-year basis, prices are down by 1,755 yuan (-30%).

Decrease in Chinese Steel Stockpiles

Stockpiles of flat and construction steel products at warehouses in major cities in China ended last week at approximately 12 MMT. This is 100,000 tons (-1%) less than a week ago and is down year-on-year by 3.4 MMT (-22%). Stockpiles have now declined for twelve straight weeks after previously rising for eight straight weeks.

Increase in Chinese Coal Port Stockpiles

The amount of coal stockpiled at major northern ports in China now stands at 21.3 MMT. This is up week-on-week by 700,000 tons (3%) and is up year-on-year by 5.1 MMT (31%).   Coal stockpiles at the major transshipment port of Qinhuangdao (which is included in major northern ports) ended last week at approximately 4.7 MMT. This is up by 300,000 tons (7%) from a week ago and up year-on-year by 800,000 tons (38%).

The most recently released data shows that daily crude steel production at large and medium-sized mills in China averaged 2.10 MMT during September 1- 10. This has marked a rise of 3% from late August, is up by 11% from the low seen in late July and is up year-on-year by 3%. The last time that daily crude steel production at large and medium-sized mills was up on a year-on-year basis was very briefly in late May.

Smaller Contraction in Chinese Home Sales

Sales of commercial buildings in China (the vast majority of which are residential homes) have remained in contraction, but so far this year the largest year-on-year contraction was in April. More recently, commercial building sales last month totaled 1.01 trillion yuan. This is up month-on-month by 4% and is down year-on-year by 20%. This year-on-year contraction has notably marked the smallest contraction seen since January/February (January/February data is published together each year instead of monthly as Lunar New Year can occur in either January or February). Still, though, sales have now contracted on a year-on-year basis for fourteen straight months. Also of note is that sales of residential buildings (which last year contributed to 89% of all commercial building sales) continue to experience a near identical trajectory. Sales totaled 896 billion yuan, which is up month-on-month by 4% and is down year-on-year by 21%. This has marked the smallest year-on-year contraction seen since December. As with commercial building sales, though, residential building sales have now contracted on a year-on-year basis for fourteen straight months.

Global Grain Trade Forecast Lowered

The USDA has released their latest global grain export forecast for the upcoming 2022/23 season and has reduced its expectations. The trade forecast is still very preliminary, but of note is that 488.9 MMT of exports are now expected.    This is 2.9 MMT (-1%) less than was forecast a month ago but would mark a year-on-year decline of 20.5 MMT (-4%). However, global soybean exports (soybeans are not technically classified as a grain) are now expected to rise year-on-year to 24.5 MMT. The USDA is now forecasting that global coarse grain exports in 2022/23 will total 226.4 MMT, which is 2.1 MMT (-1%) less than was forecast a month ago but would mark a year-on-year decline of 25 MMT (-10%).

Decrease in Indian Coal Stockpiles

India’s power plant coal stockpiles ended last week at approximately 26.8 million tons, which is 600,000 tons (-2%) less than was stockpiled at the end of the previous week but up year-on-year by 15.8 million tons (144%). Stockpiles have now fallen for four straight weeks after previously rising for thirteen straight weeks. They can still meet 10 days of demand, while the normal requirement for this time of year is to meet 19 days of demand.

Outlook

While dry bulk rates rose further last week as expected, it is difficult to say just how much last week’s typhoons temporarily aided the market. Though, the Chinese economy is continuing to improve and peak Northern Hemisphere winter electricity demand season is fast approaching, we remain very bearish for the global economy outside of China. China remains one of only three nations that has cut interest rates this year, and much of the rest of the world is continuing to raise interest rates into what are already weak economies. The hope remains that ongoing improvement in China will continue to help offset further weakening in the rest of the world. This certainly remains to be seen. For now, though, the market can take solace in the fact that China’s steel output has risen to the highest level since late June (along with year-on-year growth returning) and that China’s total electricity production and coal-derived electricity generation have both set records during each of the last two months.