At the end of January, Capesize spot prices fell to $5,826 per day, the lowest in 20 months and well below the 12-year record high of $80,000 per day in October 2021. Bulk carriers mainly carry iron ore, coal, grain, and cereals.

Jun Huang, an economist now living in the U.S., said that the slump in bulk carrier prices was partly due to a drop in Chinese steel demand due to Beijing’s clean-air campaign for the Winter Olympics

Jun Huang is the Chief Economist of the China Enterprise Capital Union, a director of the Asia Real Estate Association, and an executive director of the Research Committee.

Hebei, the country’s central steel-making region, is near the host city of the Games, Beijing. However, many steel factories had to shut down or limit their operations due to environmental measures.

According to the control plan released by China’s Ministry of Ecology and Environment of China, the key areas, including Beijing, Tianjin city, Hebei province, and surrounding places, must remain under the restrictions from Oct. 1, 2021, to March 31, 2022. It is to achieve standard air quality for the mega sports event. 

The China Paint Procurement Network reports that officials are imposing an enhanced 67-day “work stoppage order” on more than a dozen areas in Tianjin and Hebei, Including Tangshan, Shijiazhuang, Zhangjiakou, and Chengde. It means that heavy industry businesses in more than half of China’s provinces and cities face disruptions.

According to xindemarinenews, Joakim Hannisdahl, CEO and co-founder of Cleaves Asset Management, also believed that cutting down industrial operations for the Winter Olympics has been the driver behind the decline in dry bulk shipping prices besides regular seasonal changes.

In addition to the short-term factor of the Winter Olympics, energy conservation and carbon reduction are also long-term constraints on China’s steel industry. 

China Metallurgical News estimated that pig iron and crude steel production in the country would drop significantly this year as the government tries to cut crude steel production for environmental targets.

Citing data from the National Bureau of Statistics of China (NBS), the website said that in October 2021, China’s average daily production of pig iron and crude steel fell by 3.9% and 12.2%, respectively, compared with the same period in 2019. Therefore, based on the green and low-carbon policy, the website judges that pig iron and crude steel production will be around 800 million tons and 920 million tons in 2022. In other words, pig iron and crude steel production will drop by 62 million tons and 100 million tons respectively in 2022, down by 7.2% and 10%. As a result, the corresponding iron ore demand will drop by about 100 million tons.

According to Mysteel’s research, 247 steel mills had a blast furnace opening rate of 68.14% on Dec. 13, 2021, down 1.66% from the previous week and 16.63% from the year prior. At the same time, the utilization rate of blast furnace ironmaking capacity was 74.12%, down 0.67% month-on-month and 17.35% year-on-year.

Huang Jun analyzed that in addition to the restrictions of environmental protection policies, the slowdown of infrastructure investment growth is another reason for the decline in China’s steel demand. 

In 2021, China’s infrastructure investment saw almost zero growth. First Financial cited data from the NBS that small-scale infrastructure investment fell back to 0.4% last year, whereas large-scale infrastructure dropped by 0.2%. The primary industries affected are water conservancy, environmental protection, and public facilities management.

Huang Jun said another reason for the slump in freight prices was last year’s unusually soaring freight prices.

He commented, “Why is the drop so big and the 90% so exaggerated? It’s because of the past pandemic, which has caused frequent blockages at the pier. Many ships cannot leave once they have entered, so there are no empty ships to carry.”

According to the Nikkei Asian Review, Chinese ports experienced severe disruptions in mid-2021 as COVID-19 entry restrictions and bad weather hampered unloading.

Sign up to receive our latest news!

By submitting this form, I agree to the terms.