Slackening grain trade may be ahead

More evidence of strengthening commodity imports into numerous countries has been unfolding. Assuming that the improving trend is durable, global seaborne dry bulk trade’s resumed growth in 2021 could persist through next year, amid industrial activity recovering from the effects of the pandemic.

Most forecasts of global economic growth remain upbeat, despite ongoing covid infection problems. If world gross domestic product expands by 5–6% this year, followed by another sizeable increase in 2022, as recovery progresses, prospects for trade in many industry-related bulk commodities seem favourable. Yet some analysts are not entirely certain, pointing to rising potential for an inflationary surge.

GRAIN & SOYA

One element of dry bulk trade which may cease contributing to overall growth is grain. In the past twelve months a further rapid expansion of global trade in wheat plus corn and other coarse grains occurred. But this was entirely due to China’s remarkable increase in imports, which may be partly reversed in the new 2021/22 crop year starting this month.

According to International Grain Council estimates published at the end of last month, China’s grain imports reached 60mt (million tonnes) in the past crop year, 2020/21, a 167% rise from 22.5mt. In the twelve months ahead this total could fall to 47.5mt amid improved domestic supplies and moderating feedgrain demand. Currently there are no signs of a full offset from additional imports into other countries, and so world grain trade in 2021/22 is expected to decline slightly by 7.3mt or 2%, to 418mt, as shown in table 1.

IRON ORE

Support for the steel industry raw materials trades has been boosted this year by the revival of steel production around the world, as a direct consequence of the industry’s recovery from the most damaging effects of the pandemic. In Europe, Japan and among Asian countries positive trends have emerged and, in China, the recovery which began earlier has continued.

Several forecasters see iron ore imports into the European Union, Japan, South Korea, Taiwan and some smaller importing countries growing briskly in 2021. But prospects for world iron ore trade still depend on what happens in China, which comprises three-quarters of the total. Although during the first five months China’s imports were 6% higher at 472mt, there are doubts whether this pace of expansion will be maintained.

COAL

Environmental pressures seeking to reduce or eliminate coal consumption are prominent globally. Yet it still seems quite likely that seaborne coal trade will grow this year, albeit probably only modestly, after last year’s large reduction, as energy demand picks up.

Recent forecasts published by the Australian Government showed world metallurgical coal trade increasing by 17mt or 6% in 2021 reflecting steel output recovery, reaching 315mt. By contrast, however, there was less optimism for the bigger thermal coal segment’s progress. Trade in this category is now expected to decrease marginally by 6mt (under 1%) to 1019mt, down from a 4% growth rate envisaged earlier.

MINOR BULKS

Within the minor bulks sector, fertilizers — including potash, phosphates (rock and processed), sulphur and urea — form a large element which evidently continued growing at 2–3% annually in the past few years, totalling about 190mt in 2020. A further increase could be seen this year base on recent signs.

BULK CARRIER FLEET

Handysize bulk carriers with a capacity of 10–39,999 deadweight tonnes comprise about 12% of the world bulk carrier fleet. As shown in table 2 this category has seen modest 1–2% expansion annually, to reach 106m dwt at the end of last year, and a similar increase is envisaged during 2021. Both newbuilding deliveries and scrapping may remain quite stable. This low growth contrasts with more vigorous expansion in the larger bulk carrier size groups.

TABLE 1: GLOBAL WHEAT & COARSE GRAINS IMPORTS (MILLION TONNES)

Asia (excluding Japan) Japan Middle East Africa Others World total 2016/17 99.7 23.1 54.0 75.4 100.6 352.8 2017/18 99.3 23.6 61.5 76.9 108.5 369.8

2018/19 89.9 23.7 61.6 72.4 117.0 364.6 source: International Grains Council, 24 June 2021 *forecast July/June crop years

2019/20* 104.0 23.7 65.6 82.4 119.6 395.3 2020/21* 147.0 23.2 57.7 81.3 116.2 425.4 2021/22* 135.3 23.6 63.5 79.7 116.0 418.1

TABLE 2: HANDYSIZE 10–39,999 DWT BULK CARRIER FLEET (MILLION DEADWEIGHT TONNES)

Newbuilding deliveries Scrapping (sales) Losses Plus/minus adjustments World fleet at end of year % change from previous year-end 2016 4.6 3.4 0.0 0.0 98.5 +1.3

2017 3.4 1.7 0.0 0.1 100.1 +1.7

2018 3.0 0.5 0.0 0.0 102.6 +2.5 source: Clarksons Research (historical data) & Bulk Shipping Analysis June 2021 forecast *forecast

2019 3.0 0.8 0.0 0.0 104.8 +2.1

2020 2.4 1.0 0.0 0.0 106.2 +1.4 2021* 2.5 1.0 0.0 0.0 107.7 +1.4

In a report first made public by Reuters, the Brazilian Foreign Trade Association (AEB) is predicting that iron ore is on course to replace soybeans as Brazil's main export source. In 2021, iron ore export revenues are forecast to increase 60% and thereby displace soybeans as the country's main source of foreign exchange revenue, thereby reverting to the situation last seen six years ago.

Brazil is on course to generate a trade surplus on the year of $80 billion.

AEB's forecasts are based on rising prices for ore and strong demand from China. However, forecasts could prove conservative, since the main exporter Vale has only upped prices once this year, but it could be that output will also grow even further and further increase revenue.

At the end of 2020, AEB predicted iron ore exports in 2021 would reach $35.7 billion, compared to export earnings of $26 billion in 2020. However, according to Ministry of Economy data, in January–April 2021, iron ore export prices rose 77.6% while soybean export prices went up by just 18%.

Iron ore exports averaged $129.8 per tonne in April, compared to $67.6 per tonne in April 2020.

Significantly, combined, iron ore and soybeans could represent more than 30% of the country's total exports in 2021. In the first four months, Brazil registered a trade surplus of $18.3 billion, more than double the $9 billion surplus recorded the first quarter of 2020. Barry Cross

Australian producers lured by high prices of iron ore

Some of Australia’s more marginal producers of iron ore have been tempted back into production with the current hight prices of iron ore.

Pricers have been above $100 per tonne for over a year, with the result that some mining operations that were previously closed have re-opened, and others have moved forward with new mining operations.

Over 6mt (million tonnes) of iron ore mining capacity has come on stream in the last year alone, with over 110mt in the pipeline.

Outside Australia, the country’s mining companies are continuing to develop their portfolio in countries such a Madagascar, Congo and Cameroon.

In late June, the Northern Territory Port of Darwin, which has shipped no iron ore since 2015, sent out its first shipment. Before weak prices closed all the iron ore mines in the Northern Territory, Darwin had reached a peak of 2mt of iron ore exported per year. High iron ore prices have led to a rush of investment into the Northern Territory.