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Coming of age

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Dry Bulk,


India’s economic growth prospects are becoming ever more promising. While China drives the dry bulk shipping market and global economy in earnest, as the years and decades progress, India is going to become a much more significant force and will become a larger driver of growth. As with China, India has a population that exceeds just over 1.3 billion people (an estimated 1.32 billion live in India vs 1.38 billion in China), however, in India the population is growing at a much faster rate compared with China – and in only a few years India will become the world’s most populous country. India’s economy also remains in an earlier stage of development compared to China’s economy, and India has a great many decades left of very fruitful urbanisation to come. In addition, what is quite contrary to China is that India is already a democratic nation.

While later on this century China might end up being faced with having to transition to a more democratic system of government, India has long been a democracy. Therefore, it will not be faced with such a challenge.

Overall, the future of India is very promising and this remains fairly advantageous for the dry bulk shipping market. According to the United Nations, India’s population is expected to overtake China’s population by the year 2022. The population growth rate in India stands at 1.2%, where in China the growth rate is only 0.4%. India also has much younger demographic compared with China. An estimated 46% of India’s population is under 25 years old. Another 41% is aged 25– 55 years old, and only 13% of India’s population is older than 55 years old. In comparison, an estimated 30% of China’s population is under 25 years old and 48% are aged 25 – 55 years old. That leaves 29% of China’s population that is older than 55 years old. Overall, countries with relatively young populations have easier access to labour, higher consumption, and less cost pressures associated with old age.

Dry bulk shipping gains

Another very encouraging fact regarding future growth prospects is that the current economic base in India is still quite low. India’s GDP per capita currently stands at only approximately US$7200, while the GDP per capita in China stands at approximately US$16 700. China certainly remains in the infancy of its development (which remains wonderful for the dry bulk shipping market in its own right), but India remains in an even earlier stage. At the same time, India’s population is growing very quickly and the next several decades are poised to see remarkable Indian growth. This will be beneficial to the dry bulk shipping market as India could one day become a significant importer of iron ore. In addition, coal imports could ultimately be set to grow (even as the government continues to publicly push domestic miners to produce more coal), as electricity production remains only in its infancy in India. The growth in overall domestic consumption in India is also likely to lead to higher wheat exports as the years and decades progress. Coarse grain imports could also eventually be flowing into India, as the ongoing development of the economy will lead to richer diets and more animal consumption (coarse grain is used as feedstock).

Looking at the two fundamental pillars of industrial production – electricity production and steel production – India has been faring well this year. Data for the first eight months of 2017 shows that India produced approximately 66.9 million short t of crude steel, which is well on its way to setting another annual record this year. This total is 4.6 million short t (7%) more than was produced during the first eight months of 2016. This year’s 7% growth is encouraging considering that during 2016 Indian crude steel production grew year-on-year by 6% (which was very strong growth in its own right). In addition, during all of 2015, Indian crude steel production grew year-on-year by 7%. Such sustained growth in India’s steel production has been a very positive sign.

Also of note is that the first eight months of this year saw India produce 794.1 billion kWh of electricity. This is 31.2 billion kWh (4%) more than was produced during the first eight months of 2016. This year’s 4% growth in electricity production is down from the 6% growth that was seen during 2016, but is equal to the 4% growth seen in 2015. Firm electricity production growth is set to continue going forward, and there is a good chance that growth will soon rise above the 4% level as the government has been working towards further stimulating the economy recently. The Indian government also recently embarked on a new US$2.5 billion plan that will attempt to electrify all households by the end of 2018. Approximately 300 million of India's 1.32 billion people are currently still not connected to the nation’s power grid. The new plan differs from previous plans as it is targeting individual households rather than just rural villages in general.

Commodity production

Regarding commodity production and seaborne trade, India is active in several markets. India has an abundance of iron ore and does not need to import this valuable commodity. However, this year has finally witnessed a resurgence in India’s iron ore exports, as domestic iron ore production in India has been exceeding domestic demand. This has been occurring even as the country has been producing a record amount of steel this year. Overall, virtually all of India’s iron ore exports are shipped to China, and the first eight months of this year have seen exports total 20.4 million short t. This is 10.9 million short t (115%) more than was shipped during the first eight months of 2016.

Also of note is that during the whole of 2016, bulk shipments totalled only 15.6 million short t, and during 2015 shipments totalled only 2.1 million short t. Growing iron ore production in India is allowing the nation to ship more iron ore abroad. One day, though, India could find itself importing significant amounts of iron ore as steel production is set to continue to grow.

Demand for coal remains steady

While there is no demand for iron ore imports in India, imports of metallurgical coal and thermal coal remain in demand. As with iron ore, India is naturally blessed with large coal deposits, but domestic coal production in India is not strong enough to meet demand. As a result, India imports a large amount of coal. At present, this is the most significant issue in India where the dry bulk shipping market is concerned and it appears that India’s coal imports are set to rise during at least the short term. However, longer-term coal import prospects are less clear, but there is a chance that Indian coal imports will also rise during the upcoming years as well. Of note is that through the first seven months of this year, India imported approximately 105.5 million short t of coal (including both thermal and metallurgical coal). This is 15.5 million short t (-13%) less than was imported during the first seven months of last year.

While India’s coal imports have been falling during the past several years as domestic coal production has increased, imports are very likely to increase in the near term. Indian power plant stockpiles at the start of October stood at approximately 8.2 million short t, which marked the lowest level seen since November 2014. Coal production growth in India has recently only seen small signs of growth, and, as a result, coal stockpiles have fallen significantly and during October have been at critically low levels. With India’s thermal coal-derived electricity production remaining strong (along with steel production also remaining strong), near-term coal import prospects are very encouraging. The first eight months of this year saw India produce 679 billion kWh of thermal coal-derived electricity production, which is 27.6 billion kWh (4%) more than was produced during the first eight months of 2016. India’s thermal-coal derived electricity production is strongest during the fourth quarter of every year, and as a result India is likely to raise coal imports in the near term. While over the long term, the Indian government is publicly advocating to increase domestic coal production and reduce coal imports, it remains to be seen if domestic coal production will actually be able to meet India’s future demand.

Agricultural exports

Regarding India’s agricultural sector, the two primary agricultural products produced in India (excluding milk products) are rice and wheat. The production of Indian rice and wheat are both anticipated to come in at firm levels during the current 2017/2018 grain trade marketing year. Indian rice production between 2017/2018 is expected to total approximately 110 million short t, which is the same total that is estimated to have been produced in 2016/2017. India produces more rice than it consumes domestically, though, and India’s rice exports for 2017/2018 are expected to total 11.8 million short t. This is 800 000 short t (7%) more than is estimated to have been exported in 2016/2017. Indian wheat production during the current 2017/2018 grain marketing year is expected to total approximately 96 million short t. This is 9 million short t (10%) more than is estimated to have been produced during 2016/2017.

However India consumes more wheat than it produces, and is active in the dry bulk shipping market. India’s wheat imports for 2017/2018 are expected to total 4 million short t. This is 1.9 million short t (-32%) less than is estimated to have been exported in 2016/2017. This year’s stronger wheat harvest is allowing India to cut back on wheat imports.

Conclusion

Going forward, India is likely to see strong growth during the upcoming years and decades as a larger proportion of the nation’s 1.32 billion citizens continue to rise into the ranks of the middle class. At the same time, India’s overall population growth will also remain strong and will continue to grow much more quickly than the population in China. By 2022, India is expected to become the world’s most populous nation – and unlike China, India will not be faced with the challenge of having to transition to a more democratic system of government.

In addition, India is still very much a developing country, and its infrastructure remains in the very early stages of development. There are a great many decades of progress left to be seen in India, which can be seen as a positive sign for the dry bulk shipping market.

Author

Jeffrey Landsberg, Managing Director, Commodore Research & Consultancy, USA

Note

This article was first published in Dry Bulk Winter. To receive your free copy of the magazine, click here.

 

 

Read the article online at: https://www.drybulkmagazine.com/shipping/28122017/coming-of-age/

 

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