World Grain - February 2009 - 53

FEATURE: GLOBAL GRAIN 2008

China had moved to slow the economy, but now it has developed a package
designed to encourage growth. "They
were mostly worried about inflation," he
said. "The suspicion is now that China's
rather overdone."
Chinese steel producers are holding
high stocks of ore, so they have stopped
buying. "It's simply too early to say
whether enough is being done to put an
end to the collapse in the Chinese steel
market," he said. "The supply of raw
materials is getting well out of hand in
comparison with the demand."
"The main problem is the build-up of
stocks," he said. "China has been furiously exporting steel."
Typically, China exports 20% of the
steel it produces. "The whole atmosphere is turning much more protectionist," he said. "China again has to focus
in on itself."
China needs to produce steel to main-

tain its economic growth targets. "China
doesn't grow without steel," he said. "It
might not be growing at all at the moment. I don't believe China can maintain eight or 10 percent growth rates for
very long without reigniting its blast
furnaces."
At the same time, the dry bulk order
book had grown as shipping operators
responded to the record prices seen in
the last two years. The order book for
new dry bulk ships has risen to 71.8%
at the end of October 2008 from 53.8%
a year earlier.
"The order book is under threat," he
said. "Perhaps 60 percent of the order
book could be reasonably expected to be
delivered."
Operators have ships on order they
can't use. "One shipping banker recently
had to (advise) his clients to 'walk away
from your deposit,' " he said. "You know
that something major is going on."

One reason for the problem was
that shipbuilders had only just started
to catch up with demand for dry bulk
capacity.
"When the dry bulk market took off
in 2003, every other market was booming," he said. "Huge extra volumes of
dry bulk tonnage had been ordered in
the last year or so."
Even so, the growth in shipping capacity will be huge. "Even at 45% cancellation on the 2005 order book, we
generate fleet growth that is unprecedented," he said. "The order book looks
enormous, but it's never been more
unpredictable. Ships will undoubtedly
WG
enter layup."
Chris Lyddon is World Grain's European editor.
He may be contacted at:
chris.lyddon@ntlworld.com.
We want to hear from you - Send comments and
inquiries to worldgrain@sosland.com. For reprints of
WG articles, e-mail reprints@sosland.com.

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