While the proposed ban on Indonesian coal exports for January may still be a risk factor for the dry bulk market in the very short-term, it is difficult for us to see a more prolonged disruption to Indonesian coal exports, given the negative impact that would have on the Indonesian economy. It’s also worth noting that most Indonesian exports go to China, and that in the event of a prolonged disruption, China would likely re-consider its ban on Australian coal supplies, at least in the short-term, and thus the overall impact on the coal trade, and the dry bulk market would still be limited. Perhaps not surprisingly, we see the uncertainty surrounding Chinese steel production as the most important risk factor for the dry bulk market over the entire course of 2022.After rising sharply in 21H1 and then abruptly reversing course in 21H2, the key question is where will Chinese output go in 2022. First, it is worth noting that the sharp drop in output during 21H2 was due to a combination of events, largely driven by government actions. These included policy initiatives to cool the overheating property sector (which took a toll on leading property developers such as Evergrande) and fight pollution, as well as an energy crisis that hurt the manufacturing sector of the economy. In our Base Case scenario, we expect the Chinese government to take some measures to stimulate the economy, with new infrastructure and construction projects proposed for 2022. In addition, the country’s energy crisis has eased, which should give a modest boost to steel production, and some pollution constraints are likely to be lifted after the Winter Olympics are completed.
All of these factors point to some recovery in Chinese steel production over the course of 2022. But one big question mark remains the property sector, and whether the government will take steps to allow investment in that sector to rebound quickly. For the full eBrief and Marsoft’s Quarterly Reports contact one of our offices.