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.


Tesla nears 3-month low as JPMorgan adds to private deal doubts

Updated 20 August 2018
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Tesla nears 3-month low as JPMorgan adds to private deal doubts

  • Slashing its price target for Tesla from $308 to $195, the brokerage said it did not believe Chief Executive Officer Elon Musk had funds for a plan
  • Tesla shares fell nearly 4 percent

LONDON: Tesla shares fell nearly 4 percent on Monday as a $113 cut in JPMorgan Chase’s price target for the electric carmaker added to growing doubts among market players about a plan to take the company private.
Slashing its price target for Tesla from $308 to $195, the brokerage said it did not believe Chief Executive Officer Elon Musk had funds for a plan announced by a tweet that said “funding secured” two weeks ago.
Analysts from the US bank had upped its forecast from $198 to $308 after a roughly $100 surge in Tesla stock following Musk’s tweets on Aug. 7 and the note on Monday was the latest evidence of skepticism about the deal on Wall Street.
People familiar with the matter said on Sunday that PIF, the Saudi Arabian sovereign wealth fund that Musk says had been pressing to help fund the buyout, is in talks to invest in aspiring Tesla rival Lucid Motors Inc.
“Our interpretation of subsequent events leads us to believe that funding was not secured for a going private transaction, nor was there any formal proposal,” JPMorgan analyst Ryan Brinkman wrote in a client note.
“Tesla does appear to be exploring a going private transaction, but we now believe that such a process appears much less developed than we had earlier presumed, suggesting formal incorporation into our valuation analysis seems premature at this time,” Brinkman said.
JPM now targets the stock, which it continues to value at underweight, back at $195, versus Friday’s close of $305.50. The median price target of the Wall Street analysts covering Tesla is $336.
Tesla shares touched a three-month low of $285 in premarket trading before recovering to trade around $290, reducing its market value back below that of General Motors as the biggest US carmaker.
An interview with the New York Times, in which Musk said he was under major emotional stress in the “most difficult year” of his life, on Friday added to investors’ concerns over his leadership after a series of social media spats.
A person with direct knowledge of the matter told Reuters last week that the SEC has opened an inquiry related to Musk’s tweets on the buyout and the billionaire is also facing a class action suite from investors who lost money in the share moves.
“The lack of process to (Musk’s) announcement has now caused governance and competency concerns which are starting to snowball,” said Tigress Financial Partners analyst Ivan Feinseth.