Bulker markets will prosper this year if the Chinese government continues to intervene to stimulate economic activity and mitigate possible shocks, according to analysts.

But Covid-19-related inefficiencies and disruptions will continue to affect bulker markets in 2022.

This year has begun with a difficult picture for China, which since mid-2021 has suffered shocks to its real estate and credit sectors, plus energy rationing and emissions controls that have impacted key industries like steel production.

China’s economic growth slowed to its lowest rate in 18 months during the fourth quarter of 2021 on the back of defaults in its property sector and slowing consumer activity as new Covid-19 restrictions were adopted.

The country’s gross domestic product (GDP) increased by 4% year on year during the final quarter, compared to growth of 6.5% over the same period a year earlier.

But Derek Langston, head of research for shipbroker Simpson Spence Young (SSY), thinks it is possible that the Chinese government could step in this year to stimulate the economy.

“There can be no doubting the pressures on credit and the real-estate sector in China, but we are also aware of the potential for some form of stimulus package, should the government deem it necessary,” Langston said in the firm’s outlook report for 2022.

SSY expects that fluctuations in China’s coal imports this year are likely to contribute to freight-rate volatility in the Pacific once again.

Langston said this month’s coal export ban in Indonesia “is an example of how government intervention can distort trade flows”.

Covid-19 will continue to cause disruption to bulker markets in 2022, according to SSY.

China has adopted a “zero-Covid” strategy, which SSY expects will pose a risk of disruption to port terminals, should a small-scale outbreak of the illness be detected.

Added to that, SSY thinks that restrictions on crew changes and port calls are likely to be extended due to the increased transmissibility of the Omicron variant, which will exacerbate fleet inefficiency in bulker trading patterns this year.

Upturn around the corner?

But it will be China that will drive the eventual upturn in bulker markets, which Braemar ACM Shipbroking expects “may be on the horizon”.

There are encouraging signs already, despite the prevalent gloom, according to the shipbroker’s research team.

For starters, there is the action taken by the Chinese government to stimulate the economy and mitigate any further downside to its property market.

Lending restrictions were eased in China on Thursday, lowering both the five- and one-year loan prime rates and granting increased bond issuance to companies under pressure.

“These policies typically take time to filter through the economy before tangible results are realised, but if successful, we are likely to see an uptick in import demand for several bulk commodities,” Braemar said in a research report on Thursday.

China last year suffered an energy crunch that peaked in October but has since eased somewhat.

Now that the risk of energy shortages has passed, Braemar thinks key industries that are reliant on dry bulk commodities will be able to ramp up their operational capacity again — which should translate to stronger demand for dry cargo shipping.

Steel, aluminium and cement manufacturers have been subject to tighter emissions controls in the run-up to the Winter Olympics in China, which will conclude in mid-February. Several events will be held in Hebei province, China’s single largest province for steelmaking.

Braemar said these constraints are likely to be eased once the games are over, helping production to normalise.

Chinese crude steel production totalled 86.2m tonnes in December, 5.5% lower than a year earlier, according to National Bureau of Statistics figures cited by Braemar. Utilisation rates at Chinese steel mills have fallen to 18-month lows.

However, December’s steel production was up by 24.4% compared to November and represented the highest monthly output since July.

Overall steel production for the full year 2021 fell by 2.2% compared to the previous year, totalling 1.03bn tonnes.

China’s import ban on Australian coal translated to longer voyages for coal stems last year, as bulkers headed further afield to load in regions like Russia and the US.

Braemar said it expects this effect to “may intensify in the coming months following the announcement of the Indonesian coal export ban”.

Most miners still have not met their domestic sales obligation, which prohibits these producers from selling their product for export, Braemar noted.