Donald Trump is expected to have little effect on bulker markets, unless he brings in drastic US tariffs on Chinese goods when he becomes president in January.
If this happens, US grain could be subject to retaliatory “trade tensions” with China and could end up travelling longer distances to new markets, according to analysis by Arrow Shipbroking & Energy Group.
Beijing might hit back at the tariffs by cutting its imports of American grain, but this could be a good thing for bulker tonne-mile demand.
“This would likely result in trade route adjustments rather than a drop in overall trade volumes, as Brazil would likely redirect its grain exports to China while the US finds alternative markets,” Arrow’s research team, led by Burak Cetinok, wrote in a report.
The US-China trade war of 2018 had a similarly positive impact on bulker tonne-miles, Arrow noted.
Seaborne US grain cargoes are exported primarily on supramax and handysize bulk carriers, with panamaxes taking a slightly smaller share of the market, according to bulker tracking platform Oceanbolt.
China is the biggest demand centre for US grains, importing almost one-quarter of its seaborne exports, data shows.
Panamaxes are the biggest carriers of US soybeans and wheat, while supramaxes dominate in corn, sorghum and barley, according to Oceanbolt voyage counts for the past 12 months.
Price differentials and arbitrage opportunities open up between trading regions when trade barriers are imposed, reshaping cargo flows but not necessarily reducing volumes.
Given China’s growing exports to emerging markets, the initial disruption and subsequent adjustment of trade flows is likely to be relatively short-lived and less severe when compared to, for example, the effect of trade sanctions on Russia, which exports mainly oil and products.
Arrow thinks this should allow China to redirect its exports quickly to alternative markets.
Any further weakening of the Chinese yuan, combined with more aggressive dollar pricing of exports, should cushion the effect of higher tariffs by firming demand from other markets, according to Arrow’s analysis.
The value of the yuan has fallen by around 1.3% over the past week.
“High tariffs could indirectly impact the dry bulk sector by reducing exports and lowering manufacturing output in China,” Arrow said.
“Initially, this would likely be bearish for raw material and dry bulk demand.
“However, it could also prompt Chinese policymakers to stimulate domestic consumption through increased fiscal measures.”
China is grappling with weak domestic demand for raw materials, particularly from its beleaguered property sector.
Beijing would probably take steps to prop up any potential drop in dry cargo exports, a major driver of economic growth, which could in turn stimulate domestic demand for raw materials, Arrow said.
