Dry bulk rates were mixed last week, with capesize rates declining while rates in the rest of the market found support. Prospects for the entire dry bulk market remain promising, and more than anything we view the capesize decline as very normal and akin to taking a breath. Capesize fundamentals remain encouraging, Chinese steel output has set another daily record, Chinese iron ore port stockpiles have fallen further, and global iron ore production and export prospects remain very bullish. Remaining particularly bullish in the iron ore market is that Brazilian iron ore exports have increased on a year-on-year basis for six straight months (which marks a feat not seen since 2018), and normal seasonality remains intact.
In China, the most recent data shows that daily crude steel output at large and medium-sized mills averaged a record 2.42 million tons during May 1 - May 10. This is up by 1% from late April’s production average (which at the time set a record) and is up year-on-year by 18%. As we have long been stressing in our Weekly Dry Bulk Reports this year, China’s steel output has been poised to stay strong even as the government has been working to place limitations on heavy polluting mills near Beijing. We remain of our view that China’s total steel output this year will not come close to contracting.
Also of note in the Chinese steel market is that prices remain robust. The average price of hot rolled coil in China, for example, ended last week at 6,555 yuan/ton which is 430 yuan (7%) more than a week ago. Prices have now increased during thirteen of the last fourteen weeks. Overall, it remains very positive that steel prices in China continue to maintain significant strength even as a robust amount of steel continues to be produced. Chinese steel stockpiles have also continued to decline. Stockpiles of flat and construction steel products at warehouses in major cities in China ended last week at approximately 15.6 million tons. This is 500,000 tons (-3%) less than a week ago and is 2.4 million tons (-13%) less than was stockpiled at this time last year. Stockpiles have now declined for nine consecutive weeks. Previously, they had increased for ten consecutive weeks.
Chinese coal prices also remain robust due to strong demand and restrictions on domestic coal production. The price of benchmark Shanxi coking coal ended last week at approximately 1,995 yuan/ton. This is up week-on-week by 13% and up year-on-year by 53%. Domestic coking coal prices have been climbing since mid-March and have set a new record. The price of benchmark Qinhuangdao thermal coal ended last week at approximately 950 yuan/ton. This is up week-on-week by 13% and up year-on-year by 96%. Domestic thermal coal prices have been climbing since the beginning of March and are at the highest level seen since January.