So what message does the detail in China’s imports data for June and the June half year tell us?
Imports of key commodities such as copper, iron ore and oil tell us that the economy is going sideways and nothing more.
The smaller fall in the import bill last month (down 6% or so from a year ago, lower than the near 18% drop in May) doesn’t mean the economy or demand has picked up.
In fact the sharp fall in commodity prices in June and so far in 2015 has not triggered a jump in demand from China, or for products from Chinese manufacturers.
The Chinese economy is still running up and down on the spot – and the key import data for iron ore, oil and copper confirm that.
The fall in commodity prices if anything has been both a gift and a drawback – a gift in that it has cut costs just as much of Chinese manufacturing needed relief on the costs side, but it has also added to the deflationary pressures from the sluggish demand.
So while China’s exports rose 2.1% in June from a year earlier in yuan terms, reversing the near 3% fall in May, it’s nothing really to write home about.
Imports in June fell 6.7% in yuan terms from a year earlier, compared with the near 18% drop in May.
The country’s trade surplus narrowed in June to 284.2 billion yuan ($46 billion) from 366.8 billion yuan in May.
Take iron ore – the key commodity for Australia. The lack of any significant boost to demand this year from falling prices tells us a lot about the weak nature of demand from the domestic economy.
June imports were 74.96 million tonnes, up 5.8% from May but only 0.5% higher than June last year. (Australian exports to China in June were at a new high of 32.6 million tonnes).
First half imports totalled 452.9 million tonnes, down 0.9% over the first six months 2014, and a telling reminder of just how weak demand for Chinese steel is (apart from exports).
Most of June’s imports would have been bought in April when the price of iron ore was well under $US50 a tonne and yet those near record lows didn’t spark a surge in buying by Chinese steel mills. Demand just isn’t there.
Iron ore prices rose 0.4% on Monday to $US50.30 a dry ton on Monday, according to Metal Bulletin, well above the low of just over $US44 a tonne hit last Wednesday in the big China sell-off.
And if it hadn’t been for a solid rise in exports in the six months to June, iron ore prices would have probably been lower for longer.
While steel is mainly used in building and infrastructure, copper’s use also extends into manufacturing, which is the lifeblood of China’s exports.
Imports of unwrought copper totalled 350,000 tonnes in June, down 2.8% from May to a four-month low. Imports for the first six months are down 11% over the same period in 2014.
Given copper’s importance across the entire Chinese economy, the weakness so far this year tells us more about the real health of demand. Not even low prices (which have been weak since late January) have sparked a surge in purchases of the metal. But we have to remember a couple of points.
Firstly, there has been some replacement of unwrought copper imports by rising inbound shipments of copper ores and concentrates, which were up 11.6% in the first six months.
And then there has been the fall in demand for copper for use as a financing security in the shadow banking industry. But the bottom line is that the weak performance of manufacturing from the monthly surveys from the Government and Markit tells us the real story for copper is the continuing weak demand in the Chinese economy.
Oil imports in June totalled 29.49 million tonnes, or 7.18 million barrels per day (bpd) up 26.9% from May and 7.5% over the first half of the year.
Some of that modest rise in the six months to June was due to the Chinese replenishing their strategic stockpiles – Reuters has estimated that perhaps 5% of the monthly import figure has headed in that direction, or around two third of the 7.5% rise – meaning that demand from consumers has been weak.
