spotlight: china

CHINA CRISIS

Although Chinese ports may have been affected in recent time by closures due to covid restrictions, the country continues to dominate the maritime sector – an issue that has been causing concern to other international players

SUEZ CANAL Covid restrictions, as well as the overall effect of events like the grounding of the Ever Given in the Suez Canal have given people outside the industry a better idea of the importance of global shipping to the world economy.

Commentators have been focusing not only on how choke points can affect the smooth flow of trade on a global basis, but also how Chinese investment in shipping is liable to play out in the future.

The country has not only been investing heavily in port facilities, but is also a leading manufacturer of equipment, including ship-to-shore cranes and containers, alongside being a key player in shipbuilding.

China is reported to have received nearly 50% of shipbuilding orders in 2020, a major move in recent years when Japan and South Korea were two of the most dominant players.

China’s expansion outwards has been given a major push in recent years with the Belt and Road Initiative, which is designed to increase the country’s connectivity with other countries and multiple continents. It has been described as the “New Silk Road”, which in its day had a major role to play in

China’s development and role on the international stage.

Analysis suggests that China is home to seven of the 10 busiest ports in the world and also owns more than 100 ports in approximately 63 countries. More than 80% of China’s overseas port terminals are owned by the “big three” terminal operators: China Ocean Shipping Company (COSCO), China Merchants Group (CMG), and CK Hutchison Holdings. The first two are state-owned enterprises, while CK Hutchison is a private company based in Hong Kong with close ties to mainland China.

Overseas investments include Hambantota port in Sri Lanka, Gwadar port in Pakistan, and a $350m investment in the port of Djibouti. In 2018, Chinese Harbor Engineering started construction on a port terminal at the Sokhna port in Egypt.

European investments include France’s Le Havre and Dunkirk, Belgium’s Antwerp and Bruges, Vado port in Italy, Turkey’s Kumport port, and Piraeus.

In 2019, COSCO signed a $225m agreement with Volcan at Peru’s Port of Chancay for a 60% stake in the port and there are numerous other examples of port investment on a worldwide basis.

Port activity

From January to November, cargo throughput at China’s ports totalled 14.21bn tonnes, up 7.2% year on year, according to ministry of transport figures.

In common with other countries, China is seeking to improve its position as far as carbon output is concerned and this was cited as a reason for the drop in steel output last year to 1.03bn tonnes – a fall of 35m tonnes from the 2020 figure, according to the China Iron and Steel Association.

In the first 11 months of last year, the country’s steel production was about 946m tonnes, a drop of 2.6% from the previous year. Combined projects from the steel and iron industry grew substantially during the same period because of rising costs and demand. Profits totalled an increase of 86% year on year for the first 11 months of last year. The association suggests that total steel demand for this year will be similar to that of 2021.

Ports in China, as across the globe, have felt the effects of the pandemic. However, Tianjin port announced in the first week of the New Year that while coronavirus cases had been confirmed at the facility, operations were continuing as normal. The port is the ninth largest in the world in terms of cargo handling and is a key centre for supplies destined for the 2022 Olympic Games due to take place in Beijing.

Ningbo port, meanwhile, has been experiencing backlogs because of lockdown restrictions and testing requirements have slowed down movement through the facility. It has experienced shutdowns due to covid outbreaks and delays with vessels waiting outside the port for a berth.

Coal production

While countries across the globe are encouraging a move away from coal use, China has been increasing its production and transport of coal as well as oil and gas. China State Railway Group was reported to have carried 118m tons of thermal coal in November last year, an increase of more than 34% and many countries that produce coal are seeking export business with the country, including Russia, Mongolia and Indonesia.

Recently, 12 Chinese coal import enterprises signed medium- and long-term thermal coal supply contracts for 2022 with 12 coal export enterprises from Russia, Indonesia and Mongolia. This first tranche of contracts was valued at $2.49bn, according to some sources. Further contracts were expected to follow.

According to statistics from the General Administration of Customs released on December 7, China imported 292.3m tons of coal in the first 11 months of 2021, a yearon-year increase of 10.64%. The centre of coal use continues to turn to Asia as Europe is reducing its coal demand.

In terms of coking coal, Mongolia’s exports in 2021 were affected by the uncontrolled covid19 pandemic, Zhang Juntian, deputy general manager of supply chain management and investment group Xiamen Xiangyu, said at a recent conference.

He said the governments of China and Mongolia agreed to boost bilateral trade along the border and plan to empty existing coal stocks in Chaganhada, on the other side of Ganqimaodu Port in Mongolia, by the end of February 2022. In addition, unmanned transport equipment, including automated guided vehicles and container-hoisting facilities, will be deployed in multiple ports that connect Mongolia, to reduce the risks of infection for workers.

Regional activity

According to data tracked by SMM, 73 ships arrived at domestic main ports in the first week of January. Arrivals of cargoes are estimated to stand at 11.07m tonnes, down 0.47m tonnes from the previous week and down 5.22m tonnes year on year.

Shipments that departed Australian ports were estimated to increase 1.71m tonnes week on week to 19.31m tonnes up 2.64m tonnes on the year. And that from Brazilian ports increased 0.98m tonnes to 4.8m tonnes on a weekly basis, down 6.38m tonnes over the year.

The blast furnaces in east, north-east, south-west and north-west China partly resumed their production after fulfilling their crude steel output control target, leading to more purchase demand. The iron ore prices hence gained momentum coupled with the support from the macro front.

On the other hand, however, the shipments departing overseas ports and arriving at domestic ports increased, pressuring iron ore prices to some extent as the port inventory was at a high level. In general, the iron ore prices will still carry some upside potential in the short term.

Commodity performance

If 2021 was a year of volatility and uneven performances for commodities, then 2022 is shaping up as a rinse and repeat as uncertainty over the recovery from the coronavirus pandemic remains the dominant theme.

On the surface, commodities had a strong year, outperforming other asset classes with the S&P Goldman Sachs Commodity Index index rose 35% in 2021, out-performing the US equity index S&P 500 for the first time in a decade.

However, it was a volatile year for major commodities, with record highs followed by lows and swings as supply and demand issues came into play.

China played a huge role in many commodity markets, given the world’s second biggest economy’s status as the top importer of crude oil, iron ore, coal and copper. Whether more stimulus measures will be considered to boost performance this year remains to be seen. Much will also depend on how construction activity develops during the year, following debt problems for property developers in China.

“We normally stockpile steel products in winter at relatively lower prices and sell them after the new year holidays when consumption resumes. But we are holding off this year,” Qi Xiaoliang, a Beijing-based steel trader was recently quoted as saying by Reuters.

“There’s still uncertainty in the real estate market for 2022 and the situation is not expected to be fully reversed for another six to 12 months,” he added.

“With building activity likely to remain depressed for quite some time, growth will inevitably shift down a gear or two.”

Club activity

Meanwhile specialist marine and energy insurer Standard Club is expanding its presence in the Asia-Pacific region with some key appointments and an enhanced suite of services.

Jeremy Grose, Standard Club chief executive, says: “The Asia-Pacific region continues to power ahead. We are proud to be able to support its growth from our world-class marine and energy insurance platform based out of Singapore and Hong Kong offering a diverse range of products, with local decision-making authority.”

The club is building on its longstanding regional presence and products by introducing its Coastal & Inland class into Asia early this year and growing existing products such as Strike and Delay, while developing the team and enhancing communications with members.

In a move signalling its long-term commitment to the North Asia and Greater China markets, Standard’s current managing director for Ireland, Robert Drummond has been appointed as group commercial director and will be based in Hong Kong from where he will lead the club’s commercial development in the region. Drummond has worked in various senior roles in his 37-year career at the club, including his previous role as head of Standard Asia.

To support its expanding business in Greater China, the club has recruited a marine surveyor and an additional underwriter to join its Hong Kong team. These appointments will enhance the service to members and will assist in the development of the club’s facility with Ping An, the leading insurer in China. To improve communications for Asian members and brokers, Standard Club has launched a Japanese hub within the club website and a Mandarin language hub is currently being developed. The WeChat social media platform will soon also be available, offering news, insight and guidance to Chinese members.

Standard Club is also enhancing its existing suite of services with the launch of its Coastal & Inland class in Asia in February 2022. The class provides specialist cover to commercial coastal vessels – typically up to 10,000gt – operating in harbours and coastal areas.

The club’s ability to offer localised services to members from its Singapore and Hong Kong offices, with underwriting carried out locally and an in-house team managing claims and loss prevention, showcases its strength as a market leader in the P&I sector in Asia.