Like a golden Phoenix, the dry bulk industry has taken wing on China’s demand for raw materials. Uncertainty over China’s continued demand for raw materials, however, as well as political issues and currency problems, could clip the wings of this amazing recovery. Will the dry bulk market continue to fly?By George Lauriat, Editor in Chief, AJOTThroughout the 1990s, and even into 2002, the dry cargo market was cheerless, buried in an economic malaise. Too many ships were chasing too few cargoes. Then, in 2003 a remarkable transformation began. Based largely on ever increasing demand for raw materials to feed China’s factories, demand began to rise sharply. Kevin Hazel, of Boston-based Marsoft, a ship research and consultancy firm, wrote in November of 2003, “After strengthening modestly in July and August, the dry bulk market went through the roof in September and October, with fleet utilization topping 99%, and Cape rates skyrocketing above $80,000 per day!” The dazzling speed of the ascent caught nearly every shipping analyst off guard. Dr. Martin Stopford, managing director of Clarkson Research, said this past March at a conference in Shanghai, “China has suddenly and unexpectedly entered the shipping arena with an impact nobody quite anticipated. “Indeed the track record of Chinese trade until five years ago gave no hint of the change which was about to take place. It was already an extraordinary situation, but since then, things have moved on in a spectacular way.” Dr. Stopford went on to say, “Last year became the most profitable in the bulk shipping industry’s history.” Fearnleys, an Oslo-based ship brokerage firm, summed up the year in numbers. Based on their data, the volume of dry bulk moved rose some 6.7% from 2,330 million tons in 2003 to about 2485 mt in 2004. Coal shipments increased from 610 mt in 2003 to 655 mt in 2004. Iron ore increased from 525 mt in 2003 to about 590 mt in 2004. Grain shipments (including soybeans) showed a more stable development, growing from 245 mt in 2003 to 250 mt in 2004. The neo-bulks (including fertilizer and fertilizer raw materials of around 100 mt) increased from 950 mt in 2003 to 990 mt in 2004. Of course the real story behind the numbers was, and still is, China. China’s importance in the market is dramatically illustrated by the country’s steel production. In April, the International Iron and Steel Institute (IISI) forecast that the total use of finished steel products in 2005 would exceed one billion tons for the first time. The IISI believes that total world demand will grow by 3.7% in 2005, an increase of 36 million tons compared to 2004. The key to growth is China. IISI forecasts growth in China to be over 10%, with steel consumption reaching 293 mmt this year. China thus will account for 29% of total steel demand, and astoundingly, almost 80% of world growth in 2005. What is significant is that growth in the rest of the world is negligible, accounting for less than one percent, or 8 mmt. Simply put, the steel industry is a key to the dry bulk shipping demand. Fearnleys’ estimates that the steel industry accounts for about 50% of the world’s dry bulk demand. Included in this analysis are steel business related commodities, like iron ore and coking coal, manganese, ferroalloys, limestone, iron and steel scrap, and the trade in finished steel products. Pig iron is a key component in the bulk mix. Fearnleys’ says China’s share of world pig iron output has increased from about 31% in 2003 to 35% in 2004. As a result, in 2004 China accounted for about 35% of total seaborne iron ore imports, followed by Japan, with 23%. Future demand The robust bulk business has attracted investment. There is a large orderbook, and ship scrapping has virtually disappeared since the boom came about in earnest two years ago. Drewry’s, in their monthly “Dry Bulk Outlook,” offered this view, “Recent signs still point to a positive outlook for bulk commodity imports around the world. Global seaborne dry bulk trade and b