bulk ports, terminals & logistics 2012, 20-22 may 2012, amsterdam, the netherlands
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Global short and medium term demand outlook for major dry bulk commodities
Olle Östensson, Caromb Consulting
Bulk Ports, Terminals & Logistics 2012, 20-22 May 2012,
Amsterdam, The Netherlands
Outline of presentation
• A weak recovery• New recession in developed countries • Considerable downside risks• Slower growth in emerging countries• Iron ore• Coal• Grains
A weak recoveryIMF reduced its projections in January and raised
them again in April(annual rate of growth in GDP)
Source: IMF, World Economic Outlook, April 2012
2007 2008 2009 2010 2011 2012 2013
-6
-4
-2
0
2
4
6
8
10
WorldAdvanced economiesEmerging and developing economies
The imbalances that contributed to the financial crisis are still here, and they
are growing largerChina’s current account surplus, per cent of advanced
countries’ GDP
Source: IMF World Economic Outlook Database
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Limits to growth in developed countries
• United States: – Jobs growth “out of sync” with recovery– Need to reduce budget deficit in medium term
• Euro area– Questionable management of debt crisis– Effects of fiscal austerity– Bank deleveraging
• Japan – Loss of income from earthquake and tsunami damage– Higher energy costs– Need to reduce debt levels in the medium to long term
The largest risks are in the Euro area: the base case is mildly
optimistic
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-8
-6
-4
-2
0
2
4
GDP changeInflationGovernment net lending/borrow-ing, % of GDP
Source: IMF World Economic Outlook Database
Government debt is expected to stop growing as % of GDP
2009 2010 2011 2012 2013 2014 2015 201674
76
78
80
82
84
86
88
90
92
Source: IMF World Economic Outlook Database
But there are alternative, worse scenarios:
If concerns about fiscal sustainability force a more rapid fiscal consolidation, demand would fall. Bank losses on sovereign debt
holdings and on loans to the private sector would lead to tightening credit
2012q1 2013q1 2014q1 2015q1 2016q1
-4.5
-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
WorldEuro area
Source: IMF, World Economic Outlook Update, January 2012
Deviation from base case, quarterly change in GDP
Emerging economies are losing steam
• The Euro crisis, together with slow recovery in the United States, means that demand for emerging economies’ exports is growing slowly
• Domestic overheating requires cutbacks in government expenditure (or should do so)
• Higher oil prices squeeze growth
Slowdown in China – although still solid growth
Source: IMF World Economic Outlook Database
• Inflation now appears to be under control
• Housing boom is slowing down
• But China is entering a period of economic reorientation with more focus on consumption, less on exports and investment
• Export markets are not growing as fast as before, and production costs are rising in China
• For demographic reasons, growth will be slower (the labour force stops growing in 2015)
20012003
20052007
20092011
20132015
2017-2
0
2
4
6
8
10
12
14
16
GDP growthInflation
Similar outlook for India
Source: IMF World Economic Outlook Database
• Growth in India may be constrained by government spending and reluctance to remove domestic obstacles to competition and growth
20072009
20112013
20152017
0
2
4
6
8
10
12
14
GDP changeInflation
20072009
20112013
20152017
-6
-5
-4
-3
-2
-1
0
1
Government net lending/borrow-ingCurrent account balance
…and for BrazilInflation is the main threat to growth and the government needs to restrain spending
Source: IMF World Economic Outlook Database
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017-1
0
1
2
3
4
5
6
7
8
GDP changeInflation
Oil price increases: how much of a break on growth?
• Inflationary tendencies mainly in emerging and developing countries, where energy accounts for a larger share of consumption
• Much less impact in developed countries, where there is still much more slack and lower inflation expectations
• However, the recovery is fragile and a surge in oil prices, brought on by geopolitical factors, could bring it to a halt
Oil supply: No need to worry(?)
20082009
1q2010
2q2010
3q2010
4q2010
1q20011
2q2011
3q2011
4q2011
1q2012
2q2012
3q2012
4q201226
27
28
29
30
31
32
Call on OPEC crude (total crude demand minus non-OPEC production), Million barrels/day
Source: International Energy Agency: Oil Market Report, 14 March 2012
Conclusion on the macro-economic outlook
• The recovery is under way, but it is weak and fragile
• The greatest risks are in the Euro zone, where too much austerity combined with bank deleveraging could trigger a downward spiral – and where Greece might drag other countries with it when going down
• Emerging economies have their own problems and cannot be relied on to pull the world economy into strong growth
Short term outlook: Iron ore (1)
• World steel production increased by 5.5 % in 2011; the rate of growth will be slower this year, at 3-4 %
• China will – again – have to account for most of market dynamism.
• In spite of the expected economic slowdown, Chinese steel demand will grow by at least 4.5 % this year
Crude steel: World monthly production, Mt
Source. World Steel Association
January 2008
June
NovemberApril
Septem
ber
Febru
ary July
December
May
October
0
20
40
60
80
100
120
140
Short term outlook: Iron ore (2) • Chinese crude steel production was a
record 684 Mt in 2011 (increase by 9 %). The rate of increase is slowing, but production will approach 715 Mt this year
• Iron ore imports increased by 11 % in 2011, helped by more flexible pricing
• Inventories increased in 2011, probably by about 15 Mt – but have declined in the first half of 2012
• Domestic iron ore production (run of mine ore) increased by 24 % in 2011. Ore grades declined precipitously, however, and if converted to standard grade, production was probably constant - despite high prices
• Chinese iron ore imports in 2012 will exceed 700 Mt and probably reach 725 Mt
China: imports’ share of iron ore use growing
Sources: World Steel Association, China Metallurgical Newsletter, TEX Report
January 2008
Septem
berMay
January 2010
Septem
berMay
January 20120.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
Iron ore importsCrude steel production
Short term outlook: Iron ore (3)
• Chinese imports up by 40 Mt in 2012• Imports in rest of world up by maybe 30 Mt, with
increases mainly in Asia (Japanese imports fell by 8 Mt in 2011 and will bounce back as reconstruction gathers speed) and North America
• Total rise in seaborne trade of 70 Mt in 2012 – about the same as in 2011, but more equally distributed.
The longer term
19941996
19982000
20022004
20062008
20100
5
10
15
20
25
30
increase gdp
increase crude steel production
Two tendencies will influence Chinese iron ore imports:• Falling steel intensity
as the economic reorientation gets under way
• Increasing share of imports as domestic mines are forced to close
Sources: IMF World Economic Outlook Database and World Steel Association
Short term outlook: Coal (1)• The focus is still on Asia, but US thermal coal exports are increasing as coal
gets pushed out by gas on the domestic market. As much as 70 Mt of coal could get squeezed out, with a portion being exported, contributing to depressed prices in the Atlantic basin. Most of the export increase took place in 2011 (+10-15Mt).
• Due to the uncertain economic outlook, demand is weak in Europe• China’s imports of both thermal and metallurgical coal fell in 2011, but
increased in Q1 2012• Japan’s imports also fell in 2011 – electricity from closed down nuclear
reactors was replaced by natural gas rather than by coal – but recovered in Q1 2012
• Indian imports of thermal coal are growing rapidly, due to failure to increase domestic output
Short term outlook: Coal (2)Imports into China and Japan declined in
2011, but will pick up in 2012, imports into India growing
China India Japan China India Japan2010 2011
0
20
40
60
80
100
120
140
160
180
200
MetallurgicalThermal
Short term outlook: Coal (3)
• Thermal coal demand in Asia is expected to recover in 2012, helped by low prices
• Elsewhere in the world, slow economic growth is limiting demand
• Exports from Australia and Indonesia are expected to pick up• Total growth in thermal coal trade in 2012 is expected at
about 60 Mt, almost all in Asia• Demand for metallurgical coal will follow steel demand,
growing by 3-4 %• Seaborne trade will grow by more, close to 10 % or 25-30 Mt,
because of strong increase in imports into China and India• As a result, seaborne trade of coal is likely to increase by 85-
90 Mt in 2012
Short term outlook: Grains (1)World grain production and consumption, Mt
• The forecast is for record harvests in both 2011/2012 and 2012/2013
• A large portion of the increase will be accounted for by feed grains
• The growth in industrial consumption is expected to slow down as ethanol demand stalls in the US
Source: International Grains Council: Grain Market Report, 26 April 2012
Is the food crisis over?
2006/07
2007/08
2008/09
2009/10
2010/11
2011/2012
2012/20131,400
1,450
1,500
1,550
1,600
1,650
1,700
1,750
1,800
1,850
1,900
ProductionConsumption
Short term outlook: Grains (2)
• Trade volumes are expected to increase by 15-20 Mt in 2011/2012 and to continue increasing in 2012/2013
• Stocks are forecast to stay flat, at levels that do not raise immediate fears about food security
Source: International Grains Council: Grain Market Report, 26 April 2012
Grain trade and stocks
2007/08
2008/09
2009/10
2010/11
2011/2012
2012/2013
0
50
100
150
200
250
300
350
400
450
TradeStocks
Overall conclusions
• Assuming that the macro-economic risks are managed...
• 2011 will see significant growth in dry bulk commodity trade, with total volume increasing by 180-190 Mt
• Iron ore and coal each contribute almost half of the increase, and China alone accounts for roughly half the additional trade
THANK YOU!
olleostensson@gmail.com
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