Dry bulk deflated by China’s latest economic figures
China’s economy grew slower-than-expected in the second quarter as youth unemployment hit a record high, adding to growing desperation among bulk owners, who have had little reason to celebrate so far in 2023.
Gross domestic product (GDP) grew 0.8% qoq in April-June, official data showed on Monday, amid weak demand at home and abroad.
“The data suggests that China’s post-Covid boom is clearly over,” said Carol Kong, an economist at the Commonwealth Bank of Australia in Sydney. “Higher-frequency indicators are ahead of May numbers but still paint a picture of a bleak and faltering recovery while youth unemployment hits record highs.”
It now looks like China will struggle to meet its 5 percent GDP target for this year after a tepid 3 percent growth last year. More than one in five people aged 16 to 24 in China are unemployed, raising concerns for Beijing authorities.
Chinese household wealth fell in 2022 for the first time in two decades, driven by the real estate downturn and the plunge in stock markets during the pandemic.
The only consolation for dry bulk carrier owners in the second quarter figures released today is industrial output, which measures activity in the manufacturing, mining and utilities sectors. This metric beat analysts’ expectations, rising 4.4% in June compared to the same month last year.
Of even greater concern was the struggling real estate sector, which reported more terrible numbers. China’s real estate investment continued to slow. Real estate investment fell 7.9% in the first half of the year, compared to a 7.2% decline in the first five months. Property investment fell 20.6% year-on-year in June after falling 21.5% in May.
A new dry bulk report from brokerage firm Arrow suggests the Chinese government’s economic approach appears cautious and pragmatic, trying to avoid the excesses of previous cycles.
“More support is needed to reverse the economic downturn. We believe policymakers will need to provide financial support to offset a cautious private sector and rising youth unemployment,” Arrow noted.
Over 70% of the world’s seaborne iron ore and 26% of coal is shipped to China. Coal shipments have been remarkably strong this year. According to an analysis by the British consulting firm Shipping Strategy, total Chinese coal imports amounted to 221.93 million tons in the first half of 2023, twice as much as in the same period of 2022.
Despite this solid first half in commodity imports, many analysts doubt the strong buying will continue.
“There is little doubt that the sharp year-on-year increase in Chinese commodity imports, particularly coal, will not last much longer,” says a recent dry bulk report from broker Gibson.
Dry bulk owners will be hoping for a change of tone – and stimulus measures – from Beijing when the Politburo meets later this month to discuss economic measures through to the end of the year.
“We assume that the policy will develop more positively through the boosting of infrastructure investments, the introduction of targeted consumption promotion and a further relaxation of real estate policy,” says a recent UBS statement.
