Inflation is still sliding towards deflation, producer prices are still falling, as are imports, and exports are sagging – all signs that the Chinese economy is being increasingly pressured by weak demand from manufacturing and consumers.
China’s consumer price inflation has told the story – It was an annual 2.1% rate in January, much less than the annual target of around 3% but April it had drifted to the edge of deflation, with no explanation or signs of concern from the government or central bank.
April’s year-on-year rise of 0.1% and was down from 0.7% in March. Month-on-month, prices declined by 0.1%.
Economists surveyed by Reuters expected to see consumer prices rise 0.4% from a year ago and remain unchanged from the previous month.
This was the lowest reading since February 2021 when the headline CPI fell 0.2% as the deflationary impact of the pandemic and lockdowns hit the economy.
Two and a bit years later and the economy is free of Covid restrictions and supposed to be growing, but the deepening disinflationary impact – verging on deflation – suggests demand is weakening as Chinese consumers continue to be reluctant to spend up after the brutal lockdowns in 2021 and 2022.
Food (especially pork) prices fell again as did non-food prices (up 0.1% from 0.3% in March). That tells us the retail sales data to be released next week will be on the low side.
Producer prices (the Producer Price Index or PPI) fell half a per cent month on month after showing no growth in March and forecasts for a slowing in the pace of the decline.
It was the seventh straight month of producer deflation and the steepest fall since May 2020 amid moderating commodity prices – and a further confirmation of weak domestic demand and no boost from exports.
Economists said the components of the PPI showed no strength whatsoever which was indicative of weak demand, especially for imported commodities and the weak performance of exports (which grew 8.5% in April, down from nearly 15% in March).
Commodity imports remain a good barometer for the strength of demand in Chinese manufacturing.
The weak numbers for April continued the trend now seen for months and come despite the lifting of health-crisis restrictions at the start of the year when eager western investors thought that would see a surge in demand.
It hasn’t and we now have yet another example of western analysts and investors completely missing the boat when it comes to China.
The weak demand also comes as the Chinese government extends restrictions on data security – especially economic and stages high profile raids on the offices of a number of western consultants to back the point about security.
All this is raising concerns worldwide about the real strength of the Chinese economy, as the import numbers mean the global economy may not be able to rely on China to drive demand.
That’s already showing up in other numbers, such as a drop of more than a quarter in South Korea’s shipments to the country.
The cooling export numbers also suggest tepid demand for Chinese products overseas.
Beijing officials have repeatedly warned of a “severe” and “complicated” external environment amid recession risks for many key trading partners.
April’s data confirms that has vanished from the Chinese economy following its reopening and there’s nothing on the horizon from the government by way of stimulus.
Though not yet at deflationary levels, China’s low inflation is likely driven by insufficient demand.
And China’s inflation is in stark contrast to Australia’s latest reading of 6.3% in the monthly CPI indicator and the US rate at 4.9%.
Trade data for April this week showed imports of key commodities, copper, oil, coal and iron ore all fell in April, thanks to a combination of weak demand a high value of the US dollar which offset weaker global prices.
Iron ore stood out – not for its 5.1% rise in imports in the month to a high 90.44 million but for the 10% slide from March’s 100 million tonnes which was the real story
Traders blamed the sharp month on month fall on contracting steel margins undermined buying interest and bad weather which affected shipments.
“Cyclone llsa (that had threatened Australia’s northwest region) temporarily disrupted shipments in middle April, contributing to a month-on-month decline,” Pei Hao, a Shanghai-based senior analyst at international brokerage firm FIS said ahead of the data release.
But the Pilbara Ports Authority said that all tonnage delayed by Ilsa had been quickly made up when port operations at Port Hedland returned to normal.
Iron ore imports over January-April totalled 385 million tonnes, up 8.6% from the same period in 2022, according to customs. But that was down from a near 10% growth rate for the March quarter.
Interestingly China’s exports of steel products continue to climb – a sure sign of the weak demand domestically and the need for steel mills to continue running their plant as close to capacity as possible to put downward pressure on costs and protect margins.
China’s Customs Administration said exports of steel products were up 59.2% from the prior year in April to 7.93 million tonnes and were also marginally higher than the 7.89 million tonnes recorded in March.
That took shipments for the first four months of the year to 28.01 million tonnes of steel up 55% year-on-year. A strong sign of the weakness in demand domestically.
China imported 585,000 tonnes of steel in April, down from 956,000 tonnes in the same month last year with the total volumes in the first four months falling 40% year-on-year to 2.5 million tonnes. That’s another sign of weak demand and domestic prices.
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Copper is supposed to be a bellwether for the strength of activity in China’s huge manufacturing sector as well as property – both are currently weak, so imports of metal were again down in April.
China’s copper imports in April fell 12.5% from April, 2022 as weak demand and high domestic production of the metal weighed down offshore purchases.
Imports of unwrought copper and copper products totalled 407,294 tonnes in April, compared with imports of 465,330 tonnes in April 2022 and March’s 408,174 tonnes.
(Imports include anode, refined, alloy and semi-finished copper products.)
The metal is used widely in the construction, transportation and power sectors. The continuing slowdown in housing and construction is retaining any chance of a lasting upturn in demand from copper
Shrinking orders and lower profits forced many copper products producers to cut their production in recent months. Import activities also slowed down because of rising domestic supply. Production of refined copper rose to a record of more than 1 million tonnes in March
With the surge in domestic refined copper output, imports of copper ore and concentrate last month jumped 11.7% to 2.1 million tonnes. That was slightly lower than the 2.2 million tonnes imported in March.
The strong demand for concentrates suggests that the Chinese government wants to encourage processing rather than direct metal imports.
The concentrates are reportedly being sourced from developing copper mining economies, although Codelco, the big Chilean state-owned producer has been forced to halve spot sales to China because of a lack of supply.
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In April, crude imports totalled 43.41 million tonnes, down 19% month on month and 1.4% from a year ago.
Over January-April, China imported 178.77 million tonnes (10.92 million b/d) of crude, up 4.6% year on year.
China’s crude oil imports fell 16% to 10.36 million barrels a day in April, dropping from a 33-month high of 12.37 million b/d in March, while oil product exports hit a nine-month low,
China’s gas imports were up to 8.98 million tonnes in April and were down 0.3% in the four months to April at 35.69 million tonnes.
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China kept up a near record pace of coal imports in April as it looked to make sure power station stocks were more than enough for the summer drain.
The world’s top coal consumer imported 40.17 million tonnes last month, not far from the 15-month high of 41.25 million tonnes in March.
April and May are typically the low months for electricity consumption in China and power companies use that time of low demand to build stocks for the summer cooling season from June through to August.
Last month’s imports were 73% higher than the same period in 2022 as consumer bought more to meet demand that was higher than a year ago when a lot of industry and shopping outlets were shut in a Covid lockdowns.
April’s total took coal imports for the first four months of the year to 142.48 million tonnes, up 89% from the first four months of 2022 as demand picked up domestically because of the ending of the Covid lockdowns and coal imports from Australia resumed after the two-year ban was lifted.
