The January Chinese trade data came in slightly weaker than expected, but overallremained strong in the first month of 2010. Importantly however, annual growth rates were partly distorted by a seasonal base effect as the Chinese New Year holiday started late January in 2009 compared with mid February this year (see chart); the lack of a proper correction for this distortion raises the growth rates everything else equal.Crucially, import growth is again running ahead of export growth fuelling a decline in China’s otherwise impressive trade surplus.
Preliminary data on commodity imports continue to post remarkable annual growth rates (see table below). However, some weakness has certainly started to show up recently: the broad-based monthly declines across products in January signal that China’s appetite for commodities is coming down, albeit from extraordinarily high levels witnessed mid 2009 when the Chinese State Reserve Bureau invoked on strategic buying of base metals in particular. Notably, the strong iron-ore imports seen in December declined sharply last month; also, copper and crude imports were down by close to 20%. With Chinese activity still powerful, as confirmed by the strong January PMIs and double-digit GDP growth in Q4, the relatively weak imports of raw materials during the month of January suggest that producers may currently be drawing on inventories to keep production going. But, it is also likely that the policy tightening measures announced by the People’s Bank of China at the start of the year have led to some decline in manufacturing activity towards the end of the month. Note that the release of industrial production figures for January is postponed until mid March due to the Lunar New Year.
Should Chinese appetite for commodities wane further in the months ahead, this would clearly be bearish for commodities, not least for base metals; see our Commodities 2010 for a discussion of the importance of China in putting a floor under prices this year. Our economists remain confident on firm economic growth in Asia this year, but should concerns over the roll-back of Chinese stimuli as well as Mediterranean debt problems lead to doubts regarding the global economic recovery, commodities could see broadly flat trading in H1. We do not look for a major set-back in prices however.
Preliminary data on commodity imports continue to post remarkable annual growth rates (see table below). However, some weakness has certainly started to show up recently: the broad-based monthly declines across products in January signal that China’s appetite for commodities is coming down, albeit from extraordinarily high levels witnessed mid 2009 when the Chinese State Reserve Bureau invoked on strategic buying of base metals in particular. Notably, the strong iron-ore imports seen in December declined sharply last month; also, copper and crude imports were down by close to 20%. With Chinese activity still powerful, as confirmed by the strong January PMIs and double-digit GDP growth in Q4, the relatively weak imports of raw materials during the month of January suggest that producers may currently be drawing on inventories to keep production going. But, it is also likely that the policy tightening measures announced by the People’s Bank of China at the start of the year have led to some decline in manufacturing activity towards the end of the month. Note that the release of industrial production figures for January is postponed until mid March due to the Lunar New Year.
Should Chinese appetite for commodities wane further in the months ahead, this would clearly be bearish for commodities, not least for base metals; see our Commodities 2010 for a discussion of the importance of China in putting a floor under prices this year. Our economists remain confident on firm economic growth in Asia this year, but should concerns over the roll-back of Chinese stimuli as well as Mediterranean debt problems lead to doubts regarding the global economic recovery, commodities could see broadly flat trading in H1. We do not look for a major set-back in prices however.
