China plans to trim domestic output of both steel and coal this year as part of its drive to shutter money-losing "zombie companies." One shipping analyst says the moves are a potential positive for the dry bulk industry.
State news agency Xinhua reported the cuts were presented at Sunday's opening sessions of the National People's Congress.
Chinese officials at the meeting said they want to shutter about 50 million metric tonnes of steel production this year, roughly 6% of the country's expected output of 825 million metric tonnes.
On coal, the country is targeting domestic output cut of 150 million metric tonnes, about 4% of the approximately 3.6 billion tonnes the country is expected to produce.
The country had reduced coal capacity by some 290 million metric tonnes last year, as part of an effort to drive out inefficient mines and improve air quality.
The drop in domestic coal led to a resurgence in coal imports, which helped boost freight rates across the dry bulk industry. Shipping firms had been expecting more such cuts this year through reduced working days.
A report last November from Lorentzen & Stemoco says coal imports into China could hover around 140 million metric tonnes this year.
Steel production cuts may seem a negative for iron ore cargoes. But one shipping analyst, who was not authorised to speak publicly, said cargo demand need not be hurt by the move.
"Steel capacity cuts improve the profitability of existing mills, making the demand base more robust," the analyst said.
Lorentzen & Stemoco forecast that iron ore imports may drop slightly from last year, but will remain north of 1 billion metric tonnes for 2017.
