Chinese commodity imports more important than sluggish exports

Updated 11 December 2012
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Chinese commodity imports more important than sluggish exports

LAUNCESTON, Australia: If anybody is worried by the seeming weakness of China’s November trade data, then the commodity numbers should help reinforce the view that the recovery in the world’s number two economy is on track.
Exports rose a disappointing 2.9 percent in November, well down on October’s 11.6 percent gain, while imports were flat versus October’s 2.4 percent rise.
For exports, there was probably a tailing off because Christmas orders were likely shipped in the prior two months, and the ongoing drag from recession in Europe and sluggish recovery in the US also would have been a factor.
But exports are becoming relatively less important for the Chinese economy, with the policy emphasis on switching to domestic demand as the main driver of growth.
This can be seen by the higher-than-forecast 10.1 percent gain in industrial output in November and the 14.6 percent rise in retail sales, which also beat expectations.
On imports, especially on the commodity front, it appears lower prices may well have impacted the value figure, as the volume numbers show healthy demand across major items, such as crude oil, copper and iron ore.
Oil imports were the second-highest on record in barrels per day (bpd) terms, coming in at about 5.69 million bpd, about 110,000 bpd more than in October and behind only February’s 5.98 million bpd.
Oil demand has been rising as new refinery units come on stream, with two starting in October alone.
Another started in late November, meaning there’s a strong likelihood that crude imports will remain robust in December.
The new units are also slowly starting to make their impact felt on the net imports of refined products, which slipped to 1.35 million in November from October’s 1.37 million.
While there are restrictions on the export of some fuels, the ramping up of refinery capacity should at least mean fewer imports of products, thereby cutting the net import figure even if exports remain relatively stable.
The granting of licenses to directly import crude to smaller refineries, known as teapots, should also eat into product imports as much of these are in the form of fuel oil, which the teapots use as a feedstock.
Similar to oil, iron ore imports showed strong performance, jumping 17 percent from October to 65.78 million tons, the highest since January 2011.
While some of the rise was put down to mills restocking as prices of the steel-making ingredient rebound from third quarter lows, the ongoing resilience in iron ore would seem to point to solid industrial demand.
In year-to-date terms, iron ore imports are up 8 percent over the same period in 2011, despite the midyear slowing of growth in the economy, and also still ahead of a consensus forecast 6 percent gain in a Reuters survey last December.
Turning to copper, the picture is mixed, as the 13.5 percent jump in imports in November looks impressive at first glance, but in reality it only partially reversed the 18.5 percent drop in October from the prior month.
Taking the last two months together, given that October was disrupted by a week-long national holiday, and a picture emerges of virtually flat growth in copper imports.
The problem is that inventories remain high, equivalent to three months’ imports at current rates at more than 1 million tons.
And that’s just stockpiles in bonded warehouses, which don’t include other inventories, meaning the total may be closer to 1.4 million tons, representing a substantial overhang.
But in some ways it’s little surprise that the weakest of the major commodities would be copper, given its predominance in manufactured goods for exports.
It seems reasonable that copper will lag both iron ore, used more for steel for domestic construction and car assembly, and crude oil, used to fuel China’s expanding vehicle fleet.
The days of uniform strong gains across the commodity complex in Chinese import data are probably past.
What’s become clearer from data since the middle of the year loss of economic momentum is that the pick-up in demand will be lumpy and uneven.

— Clyde Russell is a Reuters market analyst. The views expressed are his own.


OPEC oil ministers gather to discuss production increase

Updated 19 June 2018
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OPEC oil ministers gather to discuss production increase

  • Analysts expect the group to discuss an increase in production of about 1 million barrels a day
  • The officials were arriving in Vienna ahead of the official meeting Friday

VIENNA: The oil ministers of the OPEC cartel were gathering Tuesday to discuss this week whether to increase production of crude and help limit a rise in global energy prices.
The officials were arriving in Vienna ahead of the official meeting Friday, when they will also confer with Russia, a non-OPEC country that since late 2016 has cooperated with the cartel to limit production.
Analysts expect the group to discuss an increase in production of about 1 million barrels a day, ending the output cut agreed on in 2016.
The cut has since then pushed up the price of crude oil by about 50 percent. The US benchmark in May hit its highest level in three and half years, at $72.35 a barrel.
Upon arriving, the energy minister of the United Arab Emirates, Suhail Al Mazrouei, said: “It’s going to be hopefully a good meeting. We look forward to having this gathering with OPEC and non-OPEC.”
The 14 countries in the Organization of the Petroleum Exporting Countries make more money with higher prices, but are mindful of the fact that more expensive crude can encourage a shift to renewable resources and hurt demand.
“Consumers as well as businesses will be hoping that this week’s OPEC meeting succeeds in keeping a lid on prices, and in so doing calling a halt to a period which has seen a steady rise in fuel costs,” said Michael Hewson, chief market analyst at CMC Markets UK
The rise in the cost of oil has been a key factor in driving up consumer price inflation in major economies like the US and Europe in recent months.
Already US President Donald Trump has called on OPEC to cut production, tweeting in April and again this month that “OPEC is at it again” by allowing oil prices to rise.
Within OPEC, an increase in output will not affect all countries equally. While Saudi Arabia, the cartel’s biggest producer, is seen to be open to a rise in production, other countries cannot afford to do so. Those include Iran and Venezuela, whose industries are stymied either by international sanctions or domestic turmoil. Iran is a fierce regional rival to Saudi Arabia, meaning the OPEC deal could also influence the geopolitics in the Middle East.