Concerns over the Chinese economy are swirling, raising serious questions about long-term dry bulk demand from China, according to analysis by Braemar ACM Shipbroking.

That being said, the spot market for capesize bulk carriers has so far yet to be shaken.

On Thursday, China published official figures for its steel output, which showed a 12% year-on-year decline in August to 83.2m tonnes.

The decrease of 11.6m tonnes is the greatest year-on-year slump in percentage terms since the Global Financial Crisis of 2007 and 2008 and is part of "alarming signals" coming out of China, Braemar commented in a research note on Friday.

Nick Ristic, Braemar's lead dry bulk analyst, said in the note: "Over the first half of the year, authorities failed to meet targets of flat output levels relative to 2020, but over the last couple of months capacity cuts have been far more aggressive than we expected."

Iron ore prices have nearly halved since May and the 62% Fe ore benchmark fell to just over $119 per tonne on Friday, the lowest level since October.

Braemar said that this, alongside other indicators, has raised "question marks" over China’s long-term dry bulk demand prospects.

"Economic markers such as industrial output, infrastructure investment, retail sales and floor space under construction also registered the slowest levels of growth since the pandemic hit China in early 2020," Braemar said.

Steel prices remain stable and underlying demand for the product remains firm, even though output is heavily constrained.

This makes it "extremely difficult to gauge how long a politically-motivated cut can be sustained before mills manage to crank up output to take advantage of elevated prices", according to Braemar.

Meanwhile, changes in trade flows for seaborne coal is helping keep utilisation high for capesize vessels, as well as consistent exports of iron ore from Brazil, Braemar said.

But Braemar added that demand for capesizes is not without risks.

"The apparent slowdown in China’s economy, along with instability in the property markets, present a significant risk for the longer term," the company said.

Capesizes doing OK

But these "alarming signals" so far have done little to rattle the capesize spot market, mainly because tonnage supply remains tight in both the Atlantic and Pacific basins.

After a mid-week wobble, average freight-rate assessments bounced back on Friday.

On Friday, Baltic Exchange panellists added another $959 to the weighted-average spot rate for five benchmark routes, which was assessed at $53,240 per day.

The assessment was a minor correction on both Wednesday and Thursday this week, dipping as low at $52,281 per day.

Nick Ristic is Braemar ACM Shipbroking's lead dry bulk analyst. Photo: Contributed

Congestion easing

Congestion of capesize vessels at Chinese ports remains high as a proportion of the trading fleet, but is unwinding slowly but surely, according to Oceanbolt.

The bulker tracking platform identified 143 congested capesizes in China as of Friday, down from a peak of 179 vessels on 13 August.

Of these vessels, most are laden. Ninety-nine have iron ore cargoes onboard, six are carrying coal, four have bauxite and the rest are in ballast, the data shows.

The majority of vessels — 56 capesizes — loaded in Australia, while Brazilian cargoes account for the second highest proportion, 25 vessels.

Oceanbolt identifies the ports of Shanghai and Rizhao as China's most congested, with 25 and 26 capesizes queuing there respectively.

The average waiting time at ports in China was 7.93 days as of Friday, pretty much the same as a month ago, according to Oceanbolt.

Braemar's research identified 19.1m dwt of capesize tonnage caught in congestion as of Monday, which it said represents about 5.3% of the trading fleet.

"Typhoon Chanthu, which passed over the Shanghai region this week has likely exacerbated these issues, with several ports halting operations temporarily," Braemar said in a report.

"As vessels depart anchorages ahead of the severe weather, it’s tough to gauge exactly how high the congestion figure is today, but the additional waiting time will likely translate to heavier congestion."

Braemar added that pandemic-related bottlenecks are still affecting ports in the Shanghai region and elsewhere, tying up ships for longer.

Fourteen-day quarantine controls at Australian ports are also helping to take tonnage out of the market in the Pacific.