Weathering the US trade war? China’s commodity imports, PMIs suggest yes
It may still be too soon to call it, but China’s huge stimulus measures appear to be working
Sydney — One of the characteristics of inflection points is volatility in the data, with the two surveys of China’s vast manufacturing sector providing a case in point.
The official Purchasing Managers’ Index (PMI) for February showed a somewhat depressing drop to 49.2 from January’s 49.5, sitting for a second month below the 50-level that separates growth from contraction.
But the gloom created by the National Bureau of Statistics PMI was partially lifted by a more upbeat Caixin/Markit report. This survey of mainly private Chinese companies rose to 49.9 in February from the prior month’s 48.3. While this is still below the 50-level, it was above the market consensus of analysts’ forecasts. Encouragingly, the sub-index for total new orders was back in positive territory at 50.2.
A possible explanation of the difference between the two PMIs is that the Caixin/Markit measure is more nimble and the companies it surveys are more likely to have been early beneficiaries of the recent stimulus measures undertaken by Beijing.
If the official PMI picks up in March, then perhaps it could be argued that China’s efforts to stimulate the economy in the face of a slowing partly caused by the trade dispute with the US are working.
The trade imbroglio looms large in any assessment of the outlook for the Chinese economy, and markets have been relieved by optimistic noises emanating from mainly the US side.
It is probably safer to be cautious as in the past few months there have been several occasions when a resolution seemed to be imminent, but these hopes have been consistently dashed.
While following the Twitter feed of US President Donald Trump may benefit traders who thrive on volatility, it may be more illuminating to look at the data for China’s imports of commodities.
Seaborne imports of iron ore were 81.8-million tons in February, according to vessel-tracking and port data compiled by Refinitiv.
This may look like a large drop from January’s 92.5-million, but it's worth factoring in that February is three days shorter than January and the whole of the Lunar New Year holidays fell within the month.
A better comparison is to take the total for the first two months of 2019 and compare it to the same period last year.
This shows China’s imports of the steel-making ingredient were 174.3-million tons in the first two months of this year, compared with 173.9-million in the same period in 2018.
This suggests fairly steady demand, and fits with a picture of a Chinese economy that has lost some momentum but isn’t yet at risk of a serious slowdown.
Coal imports tell a similar story, with seaborne arrivals of 41.1-million tons in January/February, down from 42.2-million for the same period a year ago.
Seaborne crude oil imports rose dramatically to 9.06-million barrels a day in the first two months of 2019 from 7.72-million barrels a day for the same period last year, according to Refinitiv data.
Part of this increased demand is a reflection of the start-up of new refineries and of increased exports of refined fuel, but even so the numbers are hardly suggestive of an economy coming off the rails.
China’s unwrought copper imports were 479,000 tons in January, with February data due to be released later this week. However, January’s imports were up 8.9% from the same month in 2018 and were the highest since September.
China’s imports of copper concentrate, which is processed into refined copper, rose to 1.895-million tons in January, the second-highest monthly figure on record and up 17% from January 2018.
Putting the imports of major commodities together shows that at worst China is experiencing steady demand in some of its inputs into industry, and at best there is still solid growth.
It would take several more months of robust commodity imports and a recovery in the PMIs to positive territory to confirm this, but it may be the case that China is weathering the trade dispute with the US, albeit at the cost of huge stimulus measures.