2017 ISRI Commodities Roundtable Forum: Navigating global trade

2017 ISRI Commodities Roundtable Forum: Navigating global trade

Speakers address China's slowing economic growth and the changes affecting ocean shipping.

September 11, 2017
DeAnne Toto
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Pictured above: Martin Dixon of Drewry.

The evolution of China’s economy and its effect on metals consumption and the factors influencing ocean shipping were among the topics of discussion during the Global Economic Roundtable during the 2017 Institute of Scrap Recycling Industries (ISRI) Commodities Roundtable Forum in Chicago in early September.

Martin Dixon, head of research products for London-based shipping consultancy Drewry, said trade and gross domestic product (GDP) growth have been converging in recent years as global trade slows. “Trade used to grow at two to 2.5 times GDP,” he said.

Dixon said the deceleration in global trade has been driven by factors that include nearshoring and regionalization, product miniaturization, geopolitical risk, the growth in 3D and 4D printing and the growth of virtual goods.

He added that most container shipping lines are in financial distress, which is prompting consolidation among industry players. The most notable victim of this distress was Hanjin, which filed for bankruptcy in 2016. Dixon said Hanjin’s bankruptcy filing was “surprising,” as the company was previously seen as being “too big to fail.”

As a result of recent consolidation efforts, he said the top six shipping groups are poised to control 50 percent of the market.

Fleet growth has been outpacing cargo demand, Dixon said, which has pushed down pricing. This fleet growth arose from shipping lines’ efforts to take advantage of the economies of scale associated with big ships. However, he said these economies are quickly eroded at the ports. Moderate fleet growth is forecasted through 2020, he said. That overcapacity will exist for some time, Dixon said, even though scrapping of ships and cargo containers has increased and ship orders have decreased.

Damien Ma, a fellow with the Paulson Institute, talked about the impact of China’s economic transition on global trade. Founded in 2011 by Henry M. Paulson Jr., the 74th secretary of the treasury and former chief executive officer of Goldman Sachs, the Paulson Institute is based in Chicago and has offices in Washington, San Francisco and Beijing.

Ma said China’s status as an export powerhouse spiked in 2000 when China joined the World Trade Organization, while the country’s economic growth peaked in 2007. He said China is now focused on the quality of its growth rather than on the quantity. The country’s growth through 2020 is projected to average 6.5 percent, Ma added.

Previously, China’s growth was predicated on deploying a great amount of capital, which he said was not that efficient.

The country accounts for 50 percent of the world’s steel production and more than half of its aluminum production. The single province of Hebei produced the same amount of steel as the entire European Union in 2015, Ma noted.

He said that coal is the only natural resource China has in abundance and that it has powered a lot of heavy industry in the country. However, it appears that China’s coal consumption peaked in 2013, with the recent decline being driven by government policy, Ma added.

There is a deliberate effort to slow down the country’s economy and transition it to a service economy, he said, which is less inefficient.

The 2017 ISRI Commodities Roundtable Forum was Sept. 6-8 at the Marriott Chicago Downtown Magnificent Mile.

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