Soybean Tariff Starts to Affect Freight Markets
Date: Monday, December 3, 2018
Source: Lloyd's List
Delayed impact of July trade tariffs is hurting panama and supramax rates as reduced demand and trade switches fail to meet expectations.
The full impact of China’s 25% tariff on imports of US soyabeans has started to hurt the fragile dry bulk recovery as lower demand translates into weakness for panamax and supramax earnings.
US exports of soyabeans were down 43% year on year at 11.9m tonnes as of November 22, according to US Department of Agriculture data. That equates to a loss of 122 panamax loads or 183 supramax loads from the market.
While China’s soyabean imports from Brazil nearly doubled in October from a year earlier, the reduction in tonne-mile demand is hurting shipping rates.
China’s 25% tariff on imports of US soyabean has been in effect since July, but the seasonal nature of the trade means the consequences are only now being felt fully by the shipping markets which traditionally rely on the high volumes of US soyabeans usually being sent to China at this time of year.
China typically buys most of its soyabeans from the US in the fourth quarter, after the US harvest and as Brazilian crops are still maturing.
The drop in this demand has been one of the factors behind the lack of seasonal upswing in earnings which has been seen in previous fourth quarters, according to BIMCO chief shipping analyst Peter Sand. Panamax earnings fell from $14,385 a day on October 17 2018, to $10,996 a day on November 23 2018.
China’s soyabean imports from Brazil nearly doubled in October from a year earlier, customs data showed, as buyers scooped up shipments on worries over shortages amid trade tensions with the United States. And while surges in sales to Argentina, Mexico and the EU have increased their demand up by a total of around 5.5m tonnes, China has left an 18m tonne hole in US demand.
“Hopes of a resolution to the US-China trade war before the end of the year rest on the upcoming G20 summit, but even in the unlikely event that all tariffs are immediately revoked, the trade war may have a long-term effect on trade between the two nations,” said Mr Sands.
As US President Donald Trump shows no sign of backing down on his election promise to make China play on a level playing field regarding trade, tariffs are not the only factor to have caused trade friction between the two nations. Elsewhere, China has halted imports of US crude oil, despite the commodity not being an official part of the trade war.
“If Chinese farmers decide they need fewer soyabeans to feed their livestock, the overall Chinese demand for soyabeans could be permanently reduced, even if tariffs are removed,” said Mr Sand.