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 cut ‘biggest in almost 2 years’

Updated 18 January 2019
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OPEC cut ‘biggest in almost 2 years’

  • OPEC said in a monthly report its oil output fell by 751,000 barrels per day (bpd) in December to 31.58 million bpd
  • OPEC expects 2019 global oil demand growth to slow to 1.29 million bpd from 1.5 million in 2018

LONDON: OPEC said on Thursday it had cut oil output sharply in December before a new accord to limit supply took effect, suggesting producers have made a strong start to averting a glut in 2019 as a slowing economy curbs demand.
The Organization of the Petroleum Exporting Countries said in a monthly report its oil output fell by 751,000 barrels per day (bpd) in December to 31.58 million bpd, the biggest month-on-month drop in almost two years.
Worried by a drop in oil prices and rising supplies, OPEC and its allies, including Russia, agreed in December to return to production cuts in 2019. They pledged to lower output by 1.2 million bpd, of which OPEC’s share is 800,000 bpd.
The reduction in December means that should OPEC fully implement the new Jan. 1 cut, it will avoid a surplus that could weaken prices. Oil slid from $86 a barrel in October to below $50 in December on concerns of excess supply.
OPEC expects 2019 global oil demand growth to slow to 1.29 million bpd from 1.5 million in 2018 although it was more upbeat about the economic backdrop than last month and cited better sentiment in the oil market, where crude is back above $60.
“While the economic risk remains skewed to the downside, the likelihood of a moderation in monetary tightening is expected to slow the decelerating economic growth trend in 2019,” OPEC said.
“This has recently been reflected in global financial markets. The positive effect on market sentiment was also witnessed in the oil market,” it said.
The supply cut was a policy U-turn after the producer alliance known as OPEC+ agreed in June 2018 to boost supply amid pressure from US President Donald Trump to lower prices and cover an expected shortfall in Iranian exports.
OPEC changed course after the slide in prices starting in October. A previous OPEC+ supply curb starting in January 2017 — when OPEC production fell by 890,000 bpd according to OPEC figures — got rid of a glut formed in 2014-2016.
In a sign of excess supply, OPEC’s report said oil inventories in developed economies had stayed above the five-year average in November.
The biggest drop in OPEC supply last month came from Saudi Arabia and amounted to 468,000 bpd, the survey showed.
Saudi supply in November had hit a record above 11 million bpd.
The Kingdom told OPEC it lowered supply to 10.64 million bpd in December and has said it plans to go even further in January by delivering a larger cut than required under the OPEC+ deal.
The second-largest was an involuntary cut by Libya, where unrest led to the shutdown of the country’s biggest oilfield.
Output from Iran posted the third-largest decline, also involuntary, as US sanctions that started in November discouraged companies from buying its oil.
Iran, Libya and Venezuela are exempt from the 2019 supply cut deal and are expected by some analysts to post further falls, giving a tailwind to the voluntary effort by the others.
OPEC said in the report that 2019 demand for its crude would decline to 30.83 million bpd, a drop of 910,000 bpd from 2018, as rivals pump more and the slowing economy curbs demand.
Delivering the 800,000 bpd cut from December’s level should mean the group would be pumping slightly less than the expected demand for its crude this year and so avoid a surplus. Last month’s report had pointed to a surplus.
The figures for OPEC production and demand for its crude were lowered by about 600,000 bpd to reflect Qatar’s exit from the group, which now has 14 members.