Shipping stocks plummeted as Chinese protesters took to the streets. But public fears are turning positive. The Chinese government is easing COVID restrictions sooner than expected, which should support tanker and dry bulk demand and improve container cargo flows.
The sudden policy shift coincides with more bad news for China’s exports. On Wednesday, the Chinese government reported that total merchandise exports in November fell 8.7% year-on-year. Economists polled by The Wall Street Journal expected a 2% decline.
The value of Chinese exports to the US plunged 25% y/y, doubling from a 12.6% y/y decline in October. Chinese exports to the US have plunged 27% since June. Last month, the US accounted for just 13.8% of China’s total exports, down from her 17% in July.
US Customs data shows a year-over-year decline in inbound shipments from China that has continued this month. Similarly, FreightWaves SONAR data shows a decline in Chinese bookings to the US.
Recovery in container trade could take time
Pantheon Economics wrote that China’s November trade data was “dismal.” “We expect imports and exports to deteriorate in the coming months before improving during 2023 as China readjusts its economic policies and weathers a wave of possible COVID exits.”
Evercore ISI analyst Neo Wang says the government has “pulled the trigger.” [on lockdowns] Three months earlier than expected.” Still, he cautioned that “recovery will take time.”
Wang warned that economic gains from policy changes could be delayed by “strong public fear due to inexperience with COVID-19”, labor shortages due to the epidemic and fears of government “retreat”. did.
Another reason reopening may not lead to an immediate uptick in containerized exports: Pantheon Economics believes the current weakness is more a result of declining foreign demand than supply chain disruptions from lockdowns. I point out that there is
“China’s export product data show a similar picture to that portrayed by South Korea’s exports, with shipments of electronics declining as consumers change their consumption patterns, while auto makers have fallen back on previous orders. Car exports are doing well as we catch up.”
A surge in tanker demand could come soon
Weak Chinese oil demand has been one of the major headwinds for tanker rates in 2021 and earlier this year. A recovery in volumes in recent months has supported higher rates for very large crude carriers (VLCCs; tankers carrying 2 million barrels of oil).
“Looking ahead, China is the largest charterer of VLCCs, so the resumption of China could have a significantly positive impact on the VLCC segment,” said Omar Nokta, shipping analyst at Jefferies. I’m here.
As COVID restrictions are eased and Chinese citizens become more mobile, the country’s fuel consumption will rise, increasing demand for tanker imports. Argus reported on Wednesday that China’s mobility is already up and gasoline margins are increasing.
Chinese oil companies increased their crude purchases in the first week of December, according to an Argus study. With purchases of at least 16.4 million barrels from December 1 to 7, China is “on track to be well ahead of the 26.4 million barrels traded on the spot market delivered in November,” it said. Stated.
Dry Bulk Upwards, But Not Until 2023
Among all shipping sectors, dry bulk is the most affected by China. Dry bulk shipping has suffered a significant drop in demand this year due to her COVID-induced lockdown in China and the crisis in the property market.
Deutsche Bank analysts Amit Mehrotra and Chris Robertson said, “The shift away from restrictive zero COVID policy measures and measures to stabilize and support the domestic will be key to strengthening demand for
Mehrotra and Robertson expect delays before new COVID policies boost the dry bulk market. believes that the winter months are likely to spread the infection, which may slow down the real impact of policy changes.
In an online forum hosted by Breakwave Advisors on Dec. 1, S&P Global analyst Liz Gao also predicted a delay. She noted that China’s Lunar New Year holiday in January will lead to a surge in travel by Chinese citizens, “so Omicron will spread faster.”
Commodore Research President Jeffrey Landsberg highlighted the connection between recent Chinese protests and a recovery in dry bulk rates in 2023.
“I have been saying for months that the market is bullish and overly optimistic. [on a Chinese COVID reopening]he said on the Breakwave forum. “But the protests in China changed everything.
“The Chinese economy is doing so badly that the government has been forced to ease significantly. [restrictions]The dry bulk message is:
Read more articles by Greg Miller
Related article:
