China’s economy has slowed considerably over the past three months, but the contraction should not hurt the capesize bulker market as long as two looming threats do not come to bear, market experts said.
The country’s GDP grew 4.9% in the third quarter compared to the same quarter of last year, according to National Bureau of Statistics data released on Wednesday.
That is 0.4% above what analysts were expecting, the Associated Press has reported, but it is down considerably from the previous quarter’s GDP growth of 6.3% and just above year-ago first-quarter GDP expansion of 4.5%, according to the bureau.
“In the medium to long term, the recent GDP figure signals a struggling recovery trajectory,” Wilson Wirawan, lead dry bulk analyst at Paris-based BRS Shipbrokers, told TradeWinds.
“The drip-feed approach by Beijing to shore up economic support thus far has been inadequate to rejuvenate the economy.”
The capesize market should not fall as a result of this tactic and the country’s sluggish economy, as long as a struggling real estate sector and a weak currency do not pull next year’s GDP down further, he said.
“If these two grey rhinos can be averted in 2024, coupled with the limited orderbook in play, capesize earnings would have some upside potential for next year,” he said, referring to a metaphor for a potential event with a high probability and a large impact.
Unconfirmed reports of China boosting the overall economy with stimulus money have long circulated, the latest being CNY 1trn ($137bn) of sovereign debt going toward infrastructure to get 2023 GDP growth to 5%, he said.
“However, since 2022, we have been constantly hearing unconfirmed rumours of stimulus from unofficial sources, with nothing substantial to date,” Wirawan said.
“In the event it did happen, that might give some bounce to China’s short-term growth momentum, but it will likely be at the expense of the long-term health of the debt-laden economy.”
The fallen GDP should not affect the capesize market, which has risen steadily since early September, said John Kartsonas, founder of Breakwave Advisors, an asset management firm that runs an exchange-traded fund focused on dry bulk.
“I think the GDP number is backward looking, so it does not affect current conditions,” he told TradeWinds.
But the capesize market may be in for a “relatively shallow” correction in the fourth quarter, regardless of what China’s economy does, he said.
“After all, we all know it is a volatile market and that means both ups and downs,” he said.
“We will see how deep the correction is, but we expect rates to outperform the current futures curve.”
November contracts lost $1,911 per day on Wednesday to land at $19,650 per day, the exchange showed.