For many years, there has been a great deal of speculation regarding the important role that China could play in the shipping markets some day if its economy continued to grow at a rapid pace. Well, the future has suddenly arrived, as China has become the driving force in the dry bulk market during 2002.

The catalyst behind China's recent emergence has been a construction boom, which has driven the demand for steel to astronomical heights. In the first nine months of this year, Chinese steel production rose by 24%, and this has led to a similar increase in Chinese iron ore imports. But even this increase in output was not enough to satisfy the country's appetite for steel, as China's imports of steel products also rose sharply over the past six months. These imports have come primarily from Russia, Japan, and the developing Asia region, and have thus contributed to the global rebound in steel production that has taken place in 2002.

Even this does not tell the whole story of China's impact on dry bulk trade demand. Steam coal demand in the country has also surged this year, and with domestic supplies unable to meet all of this demand, imports of this commodity have also risen sharply.

As a result of these developments, all sectors of the dry bulk market have benefited. Cape rates, in particular, have gotten a major boost from the sharp rise in Chinese iron ore imports, while Handymax rates have more recently been pushed up by the increase in Chinese steel product imports from the Black Sea region.

Perhaps the most remarkable thing about China's ability to drive freight rates higher this year is that the rise occurred while the U.S. and European economies were in the doldrums. These two regions, which make up half of the global economy (though admittedly less of dry bulk trade demand), have been stagnant for most of 2002, and dry bulk imports into these two regions have actually fallen so far this year. Given this lack of activity, China's growing role in the dry bulk market, which is highlighted below, could not have come at a better time for shipowners. (It has also inspired us to improve our analysis of Chinese trade demand, which we do in our latest market report by breaking out China as a separate importing region.)

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