Chinese industry analysts attribute the global shipping rate drop to a number of China-related factors, including Beijing's environmental protection order for the Winter Olympics, China’s reduced steel production, and the easing of port entry disruptions due to COVID-19 that sent shipping rates sky-high last year.
Winter Olympics Protection OrderAccording to Davy Jun Huang, chief economist of China Enterprise Capital Alliance and executive director of Asia Real Estate Association and Research Committee, one factor resulting in the collapse in bulk carrier prices is falling steel demand in China. The lower demand for steel is due to Beijing's environmental protection order for the Winter Olympics.
"The Winter Olympics are being held in Beijing. Nearby provinces like Hebei are major steel-making regions. A lot of steel plants have temporarily closed or reduced production due to environmental concerns," Huang told The Epoch Times.
Cities in the Beijing-Tianjin-Hebei region and surrounding areas are required to meet targets for controlling the average concentration of PM2.5 (particulate matter) and the number of days with severe or higher pollution levels between Oct. 1, 2021 and Mar. 31, 2022, according to a draft plan released by China’s Ministry of Ecology and Environment.
Chinese media and industry interpreted the environmental protection order as a six-month "stop work order" to protect the Olympics.
China Coating reported on its website (icot.cc) that in the run-up to the Winter Olympics, a six-month "stop work order" for environmental protection will be carried out from the fourth quarter of 2021 to the end of March 2022, covering 65 cities in seven provinces. It means that heavy industries in more than half of China's provinces and regions face production disruption. In addition, officials have launched an enhanced 67-day "stop work order" for a dozen areas in Hebei Province, including Tangshan, Shijiazhuang, Zhangjiakou, Chengde, and Tianjin.
Reduced Steel OutputEnergy conservation and carbon reduction are also long-term constraints for China's steel industry. China Metallurgical News (csteelnews.com) reported that the Chinese Communist Party's (CCP) Ministry of Industry and Information Technology proposed cutting crude steel output in 2021 to meet carbon reduction targets.
Zero Infrastructure Investment GrowthIn addition to environmental restrictions, slower growth in infrastructure investment is another cause for the decline in Chinese steel demand, Huang said. China will see almost zero growth in infrastructure investment in 2021.
China's narrowly defined infrastructure investment growth slowed to 0.4 percent in 2021, a new low since data became available, YiMagazine said, citing data from China’s National Bureau of Statistics.
Pandemic-Related Shipping DisruptionAnother reason for the slump in freight prices is the extraordinary surge in these prices last year, Huang said.
"Why is the decline so dramatic, reaching 90 percent? It’s because of the pandemic, which caused piers to be jammed frequently. Many ships went in and couldn't get out, so there were no empty ships to transport," he said.
According to Nikkei Asia, “Chinese ports experienced significant disruptions at their ports in mid-2021 owing to COVID-19 entry restrictions and bad weather that hampered unloading. That, in turn, restricted the availability of bulk carriers and sent prices soaring. But the number of stalled ships waiting off the shores of China has since been reduced by 40 percent, according to IHS Markit, signaling an easing of capacity constraints.”