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Diana Shipping Expects Chinese Steel Output to Fall in 2015

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Crude steel production

According to Diana Shipping’s (DSX) management, world crude steel production reached 1.66 billion metric tons in 2014. It was up by 1.2% compared to 2013. In China, crude steel production increased 0.4% in 2014—compared to a 7.5% increase in 2014. This indicates the weakest growth in 24 years.

Among the other industry statistics, the crude steel capacity utilization ratio in December 2014 stood at 72.7%. It was 2.4% lower than December 2013. In 2014, the average capacity utilization was 76.7%—compared to 78.4% in 2013. According to Commodore Research, Chinese steel prices dropped by 8% to date in 2015—compared to a 14% drop during full-year 2014.

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According to Clarksons, China’s Ministry of Finance removed export tax rebates on steel products containing boron on January 1, 2015. It’s widely expected that the removal of this export tax rebate may place some pressure on Chinese steel product exports in 2015. It will help the government cut overcapacity and consolidate China’s steel industry. In the process of industry consolidation, reducing China’s steel exports may impact dry bulk shipping demand.

Going forward

According to Commodore Research, Chinese steel output will fall in absolute terms in 2015. Despite this, Chinese iron ore imports are forecasted to reach 1 billion tons this year. It will increase by 67 million tons, or 7%, from the last year’s record. This can only come about if Chinese steel mills continue consuming greater amounts of imported iron ore compared to domestic iron ore.

These industry changes may affect companies like DryShips (DRYS), Navios Maritime Holdings (NM), and Safe Bulkers (SB). The iShares S&P 500 Index ETF (IVV) invests in sectors like consumer non-cyclical, financial, energy, technology, communications, industrial, consumer cyclical, basic materials, and utilities.

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