South Korea has joined Australia in cutting its key interest rate by 0.25% amid fears of a slowing economy and concerns about a strong currency (especially against the yen). The Bank of Korea cut its main rate to 2.5% yesterday after strong pressure on it from the country’s government, which on Tuesday pushed a $US15 billion mini-budget of stimulatory measures through parliament.
Both countries cut their rates because of a weakening economy – South Korea’s looks in worse shape than Australia’s, and that is having an impact on the big miners like BHP Billiton and Rio Tinto as their exports fall.
South Korea is a top three destination for Australian exports of meat, wheat, coal, iron ore and other commodities. The rate cut saw the country’s stock market jump 1.2%.
South Korea’s slowdown is impacting Australia. In the nine months to March, Australian exported to the country have dropped 15%, thanks to the slowdown. Exports totalled $14.484 billion in the nine months to March of this year, down from the $17.05 billion shipped in the same period of 2011-12 (when total exports too the country were a fraction under $22 billion).
The South Korean economy only grew by 0.9% in the first quarter from the december quarter. A 20% rise in the value of the won (the country’s currency) against the yen has hurt exports, which fell 2.4% in April from March. Industrial output also dropped in the same period – down 2.6%. No wonder the country’s steel groups have cut imports from the likes of BHP and Rio Tinto.
Clearly the attempts by the Japanese government and central bank to blast Japan out of its deflationary trap via huge spending programs has hurt South Korea as the yen has fallen.
This week Toyota revealed that it now expects earnings to jump 40% in the financial year to March, 2014 (after doubling in the March quarter), and the weakening yen has helped the loss-making Sony return to profit as well and sees a 16% rise in the current 12 months. As this continues these companies (and other Japanese giants) will take sales away from the likes of Samsung, LG and Hyundai, as well as the steel giant, Posco.
But while economies such as South Korea’s Japan’s and Australia’s struggle with low growth, low inflation (or deflation), China’s latest consumer price index has shown a small jump in the rate of price growth in April, thanks to a cold Spring and rising food prices. The CPI edged up to 2.4% annual from the 2.1% rate in March.
Chinese consumer prices up, but economy seems to be drifting
While food prices rose 4% in March, non-food core prices were up only 1.6% (annual) – a sign that the country’s economy isn’t booming by any means. The news saw China’s share market lose 0.6%.
But the Chinese producer price index revealed another side to the economy – deepening deflation for industry with prices falling an annual 2.6% last month, the biggest fall for six months. That tells us there’s little price pressure on industries because of weak demand. Boatseel, the country’s biggest steel group this week said it would cut prices for the first time in nine months because of slowing demand.
China is our biggest export market, but it’s sluggishness is hurting our shipments, as are price falls. In the nine months to March, Australian exports to China actually dipped slightly to $55.633 million from $55.890 million in the same period of 2011-12.
Meanwhile, China’s exports rose a better-than-expected 14.7% last month and imports jumped nearly 17% from a year ago (and were up on March’s levels) – leaving a trade surplus of more than $US18 billion – and a lot of sceptical western analysts when reckon with Japan and South Korea both experiencing weak growth and exports, China’s data is not reliable.
But the country’s demand for crude oil and iron ore was maintained with imports of both commodity up for a second consecutive month in April as cheaper overseas prices encouraged stockpiling, and improving seasonal demand saw steelmakers lift purchases.
Copper imports fell for a second successive month – down 7.4% in April (to their lowest level in 22 months and the 7.2% rise in March) and supporting the contention that the country’s need for the red metal has slowed because of oversupply, weak demand and a lot of unsold stocks. Strikes in Chile played a part as well because China is the world’s major buyer and Chile is the world’s leading producer.
Daily crude oil imports by China rose 3.7% in April from year ago and 3.5% in March – driven by a cold Spring and slightly higher demand from industry and refiners restocking after the sharp fall in world oil prices in the month.
But crude oil imports for the four months from January to April fell 0.9% percent from a year ago. That rate was down from nearly 7% for the same four month period last year. Copper and aluminium imports tumbled 27% percent and 43% respectively, compared with solid growth in 2012.
The latter falls confirms that demand for the metals is weaker than a year ago, and this has seen stocks rise. The situation however is complicated by an unknown amount of both metals (especially copper) being held in China’s warehouses because of financing deals and other lurks.
For Australia, China’s imports of iron ore is the most important figure (along with steel production) and they hit a near record 67.15 million tonnes, the third highest on record and up 4% from March. April’s total was the highest so far this year, and up sharply from the 57.7 million tonnes in April of last year.
Global iron ore prices traded around $US130 a tonne in China yesterday – a small rise, but still 18% down on the recent high of just over $US158.90 a tonne reached in February. For the first four months of this year, China’s iron ore imports hit 250 million tonnes, up from a year ago and an annual rate of around 750 million.
Monday sees data on industrial production, investment and retail sales released. That will give us a better picture of the economy’s health.
