Chinese exports were solid in May, rising 7% from May 2013, but imports surprisingly dropped 1.6%, leading some analysts to suggest the economy was still weaker than thought.
The trade surplus for May nearly doubled from April to total $US35.8 billion
Don’t believe that and all the other publicity saying that was a disappointing result for commodity exporters such as Australia.
Yes, the Chinese economy isn’t as solid as it has been in past years as it tries to handle the move to consumption led growth.
But the data shows the demand in the economy for key commodities was stronger than a year ago.
The detail of Chinese imports shows demand is surprisingly resilient – which is not the message some of the gloomsters are telling us.
In fact even compared to April (which a helpful, but not really accurate comparison) Chinese commodity imports were still solid, while compared to May 2013 they were robust, showing sharp increases.
This can be put down the stabilising economy (which showed up in the surveys of Chinese manufacturing performance last week) and a series of small economic stimulus measures announced by the Chinese government in the past couple of months in infrastructure and urban-renewal projects.
Iron ore imports are the most important figure for Australia and they totalled 77.38 million tonnes in May, down 7.2% from April. That was the third highest monthly amount so far this year.
In April, China’s iron ore imports topped the 80 million tonne mark for the second time this year: more than 86 million in January and 83.4 million tonnes last month – which was up 12.75% from March and a huge 21% from April 2013. The lowest was just over 61 million tonnes in holiday-affected February.
May’s iron ore imports were up a very strong 13% year on year. Total imports in the first five months of 2014 were up 19% from a year ago at 382.7 million tonnes (down from the 21% rise in the four months to April).
Some of the iron ore import deals are claimed to have been done to finance loans for other activities, such as property speculation.
But at the same time the same people who claim this also tell us that the Chinese government and central bank are cracking down on the use of trade letters of credit (and therefore imports of iron ore and copper) to support financing deals.
But two related factors are driving a lot of the higher demand for iron ore imports from countries such as Australia (May’s iron ore imports from Port Headland to China were a record 29.9 million tonnes).
The first is the anti-pollution drive in China which is closing older facilities and forcing others to use less polluting materials, such as imported iron ore instead of Chinese domestic ore (which is lower quality).
The second is that imported ore is cheaper and more efficient for mills to use than lower quality and cheaper domestic ore because of the higher yield of crude steel from each tonne of ore from Australia or Brazil, especially at current prices under $US110 a tonne.
But domestic demand for steel is slowing (we will know on Friday how much crude steel was produced in China last month when the production data for May is released) and forcing Chinese steel makers to push for more sales abroad, Customs data showed steel products exports rose 7% in May from a month ago to 8.07 million tonnes, while arrivals fell 6.2% to 1.22 million tonnes. They were well up on a year earlier as well.
Copper imports (another bellwether for the health of the Chinese economy) fell 15.6% from a month ago to 380,000 tonnes in May. The figure includes anode, refined, alloy and semi-finished copper products. But they were up a solid 6% from May 2013.
And oil imports fell from April (partly put down to the starting of the summer maintenance program for many refineries), but they were above the level of May 2013.
Official figures from China’s customs service showed oil imports of 26.08 million tonnes, or 6.14 million barrels per day (bpd) of crude oil in May.
Imports were 8.9% higher than a year earlier, but down 9.4% from April record level (on a daily basis, and down 6.4% on a total tonnage basis).
And soybean imports to China, the world’s largest buyer, totalled 5.97 million tonnes in May, down 8.2% from 6.50 million tonnes in April.
Coal imports, including lignite, dropped 11.4% in May from April to 24.01 million tonnes, as falling domestic prices made overseas supplies less attractive, even though they were cheaper because of falling prices.
On Monday China cut the required reserve ratio for small and medium banks in rural and city areas. The half a per cent cut will apply to banks holding around 26% of banking assets.
The moves are seen as an early reaction to what are expected to be weak figures for industrial production, investment and property prices which will be released late this week.
And finally, start keeping an eye on the value of the Chinese currency after the country’s central bank allowed it to rise by 0.22% yesterday, the largest rise in the past 18 months. That was after a series of falls this year which had seen the currency fall 3% against the greenback.
The move suggests the Chinese government is now happy with the extent of the devaluation (having helped boost exports) and will now engineer a slow rise to help importers, such as steel mills buying iron ore from Australia.
