Dry bulk deflated by China’s latest economic figures: "China’s post-covid boom is clearly over”

Dry bulk deflated by China’s latest economic figures
Sam Chambers July 17, 2023 https://splash247.com/dry-bulk-deflated-by-chinas-latest-economic-figures/

China’s economy grew slower than expected in the second quarter as youth unemployment hit a record high, adding to the growing despondency among dry bulk owners who have had little to cheer in 2023 to date.

Gross domestic product (GDP) expanded by 0.8% during April-June compared with the previous quarter, official data showed on Monday, amid lacklustre demand at home and overseas.

“The data suggests that China’s post-covid boom is clearly over,” said Carol Kong, economist at Commonwealth Bank of Australia in Sydney. “The higher-frequency indicators are up from May’s numbers, but still paint a picture of a bleak and faltering recovery and at the same time youth unemployment is hitting record highs.”

China now looks like it will struggle to make its 5% GDP goals for this year, after a tepid 3% growth last year. More than one in five people aged 16 to 24 in China have no job, a cause of serious concern for the authorities in Beijing.

China’s household wealth declined in 2022 for the first time in two decades, driven by the housing downturn and stock market slump seen during the pandemic.

The one crumb of comfort for dry bulk shipowners in the Q2 figures released today lies in industrial production output, which measures activity in the manufacturing, mining and utilities sectors. This measure beat analyst’s expectations, rising by 4.4% in June compared to the same month a year earlier.

More worrying was the embattled real estate sector which posted some more terrible numbers. China’s property investment decelerated further. Property investment fell 7.9% in the first half, versus a 7.2% drop in the first five months. Property investment slumped 20.6% in June year-on-year after a 21.5% drop in May.

A new dry bulk report from brokers Arrow suggested the Chinese government’s economic approach seems cautious and pragmatic, trying to avoid the excesses of previous cycles.

“More support is needed to turn around the economic slowdown. We anticipate policymakers will need to provide fiscal support to offset a cautious private sector and growing youth unemployment,” Arrow noted.

Over 70% of global seaborne iron ore and 26% of coal are shipped to China. Coal shipments have been remarkably strong this year. Total Chinese coal imports for the first half of 2023 were 221.93m tonnes, double the 2022 comparable period, according to analysis from UK consultancy Shipping Strategy.

Despite this solid first half in commodity imports, many analysts question whether such strong buying will continue.

“There seems little doubt that the significant year-on-year increase in Chinese commodity imports, particularly coal, will not persist much longer,” a recent dry bulk report from brokers Gibson suggested.

Dry bulk owners will be pinning their hopes for a change of tone – and stimulus measures – coming out of Beijing when the Politburo meets later this month to discuss economic measures through to the end of the year.

“We expect policies to turn more positive by boosting infrastructure investment, rolling out some targeted consumption support, and easing property policies further,” stated a recent note from UBS.