The real story from the September trade data from China has been the strength of imports – especially iron ore, oil and copper – which all rose sharply in the month as the economy recovered.
In fact China’s iron ore imports were the highest ever last month at nearly 75 million tonnes, which is good news for Australia.
Oil imports hit an all time high as well and copper imports hit their highest level in 18 months – all positive signs.
China imported 69.01 million tonnes of iron ore in August, down 5.6% from July’s record high of 73.14 million. July was the previous high, September saw that broken, against all expectations.
Given the strength of imports of raw materials in the September quarter, its clear the economy has rebounded from the trough in the second quarter.
The International Monetary Fund recognised this last week with a forecast that China’s economy would grow 7.6% this year, while the World Bank said it expects the country to achieve the government’s official target of 7.5%, which is what growth was in the second quarter. Third quarter growth in the third quarter (out late this week) is estimated to have been 7.6%.
The average price paid by China in September was $US129.10 a tonne, down 4.2% from the month before. Iron ore prices peaked at $US148 a tonne in the first quarter of 2013.
In fact iron ore has been much stronger than many of the so-called experts among brokers, big investors, banks, the media here and offshore.
There’s not an expert anywhere who forecast that to happen – it’s been all doom and gloom or worse for much of the past 18 months.
Each month China’s need for a lot of iron ore has confounded those forecasting doom and gloom and for the world iron ore price to plunge and for Australia to be badly damaged.
The improvement in iron ore demand and prices since around April has been a big surprise to a lot of people, and its good news for Australia.
September iron ore imports surprisingly hit a record high, of 74.58 million tonnes last month, as Chinese steel demand remains much stronger than anyone had forecast.
Chinese steel production is running at an average 2.14 million tonnes a day, up from 2.13 million in August and just under 2 million a year or so ago.
The higher levels of production are despite moans from the Chinese steel mills about how tough it is to make money.
The strength of China’s iron ore demand has caught the market by surprise this year, as an unexpectedly buoyant property market has propped up demand.
But some Chinese analysts wonder if demand and output will now ease as the end of the year and the northern winter approaches. China’s steel production is up nearly 8% so far this year instead of forecasts of around 4%.
Quarterly production reports from Rio Tinto and Fortescue this week will confirm the favourable impact these high levels of demand have had on the Australian industry.
Imports of unwrought copper jumped 18% to 457,847 tonnes in September, the highest since March 2012, as high levels of warehouse stocks were consumed. September’s total was 16% higher than the same month in 2012.
Total imports of copper in the June-September quarter rose 21.4% over the second quarter to 1.256 million tonnes. Imports are still down 10% in the first nine months of the year, but at one stage they were down double that. The surge in the September quarter came as warehouse stocks fell 60% from the million tonnes at the start of the year.
The trade data showed that crude oil imports in September averaged 6.25 million barrels per day (bpd), up 28% on the year and topping the previous record of 6.15 million bpd set in July.
Net imports of 6.23 million bpd in September meant that China overtook the United States in September as the world’s biggest net oil importer.
In terms of monthly tonnage, September imports of 25.68 million tonnes of oil was the second-highest on record after July, bringing total shipments in the first nine months to 211.3 million tonnes, up 5.4% from a year ago.
And imports of soybeans, another key indicator, fell 0.3% in September from a year ago after a surge in August made up for delayed shipments earlier in the year. Imports totalled 4.70 million tonnes in September, down 26% from August.
Imports in the first nine months have risen 3.3% on the year to 45.75 million tonnes.
Looking at the broad Chinese data, the trade deficit last month was $US15.2 billion down from more than $US28 billion in August because of the 0.3% fall in exports and the 7.4% rise in imports.
Exports rose to $US185.64 billion last month, while imports increased to $US170.44 billion. The fall in exports was larger than forecast, but the key is the stronger performance of imports. They were also up 7% in August.
China Balance of Trade 1Y – Exports slow, imports up, iron ore, oil and copper solid
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Overall foreign trade volume rose 3.3% in September, down from the 7% rise in September and near 8% jump in August. So while total trade slowed in September, it seems the pace of Chinese economic activity is improving, meaning that more is being consumed domestically.
In fact, China issued a report analysing the trade flows in the nine months to September, pointing out that the country’s "foreign trade dependence ratio", or the ratio of a given economy’s foreign trade volume to GDP, fell 0.7 percentage points from a year ago to 50.4%.
That’s a small but telling sign the new policy of rebalancing the economy is happening
For the first nine months of the year, exports increased 8% to $US1.61 trillion, while imports rose 7.3% to $US1.45 trillion, while the trade surplus for the period rose 14.4% to $US169.4 billion.
So putting the broad figures all together, there’s a feeling the economy is on the up, as the third quarter GDP figures later this week will likely confirm.
While trade with the European Union, China’s, largest trade partner, dipped 0.8% year on year during the January-September period, that was far better than the 3.1% fall for the first half of 2013. That tells us demand in the EU is rising, as the economy improves, especially in the eurozone, led by Germany.
Trade with the US, China’s second-largest trade partner, rose 6.7% in the first nine months, while that with ASEAN (the Association of Southeast Asian Nations) members increased 11.6%.
There are also said signs of recovery for Sino-Japanese foreign trade in the second half of the year, with the rate of decrease in bilateral trade easing in the September quarter.
In fact September saw a 1.5% rise in exports to Japan last month, the first rise for 15 months (since when relations between the two countries worsened).
From January to September, trade with the US, EU and Japan accounted for 33.2% of China’s total foreign trade volume during the period, down 2.6 percentage points from the same period last year.
