Trading partners impose curbs and protectionist measures to stem global glut
The Chinese dragon is spewing fire, and is stonewalling other nations’ efforts at steel supremacy. China, the world’s large steel producer, exported a whopping 10.3 million tons of steel in July 2016, according to China’s Customs General Administration and as reported by Bloomberg on August 8th, 2016. Steel exports increased 5.8% Y-o-Y to 10.3 million metric tons in July 2016, compared with 10.9 million tons in June 2016. China’s steel exports in the first seven months expanded 8.5% to a record volume of 67.4 million tons, surpassing annual steel exports from South Korea. Not surprisingly, iron ore imports surged, with July 2016 imports being the second highest since the beginning of the year.
The surge in steel exports has boosted iron ore imports by 8.1% in the first seven months of 2016 to 582 million tons. In July 2016 alone, imports touched 88.4 million tons, the second-highest ever, from 81.6 million in June 2016. Apart from steel, China’s net oil-product exports surged to a record high of 2.49 million tons, after smaller oil plants received the go-ahead for the first time to buy crude directly from the global market.
In recent months, there has been growing dissent against China from its trading partners, accusing the country of causing a glut in the markets and thereby reducing their competitiveness. India, the world’s third-largest steel producer, extended its floor price regime on steel imports for two more months, aimed at insulating the domestic market from a global glut, as reported by Bloomberg on August 5th, 2016. While China had promised to cut back its steel manufacture, it continues to export steel at record levels, prompting nations to impose protectionist measures. However, Premier Li Keqiang has sought to defend China’s growing exports, saying that overcapacity is not the fault of a single country, as reported by Bloomberg.
China’s July exports, imports fall more than expected
Surprisingly, China’s Customs General Administration reported on August 8th, 2016, that exports and imports fell more than expected in July 2016, predicting a subdued momentum in global trade and China’s domestic demand in the coming months. China’s exports fell 4.4% in U.S. dollars as compared to the year-ago period, following a 4.8% drop in June 2016 and market consensus of a 3.0% decline.
China’s July 2016 imports fell 12.5% in U.S. dollars as compared to the year-ago period, the biggest decline since February 2016, signaling sluggish domestic demand despite the government’s efforts to stimulate growth. China’s imports of energy, including crude oil, coal and natural gas, also slipped during the month. Oil imports fell to 7.35 million barrels a day, the lowest level since January 2016. The lower imports widened China’s trade surplus to $52.31 billion in July 2016, versus a $47.6 billion forecast and a trade surplus of $48.11 billion in June 2016.
During January to July 2016, China’s exports fell 7.4%, while imports fell 10.5%, despite the nation’s economy growing by a healthy 6.7% in Q2 FY16.
Confusing as it may seem, recent government data has portrayed a mixed picture of the Chinese economy. While government data showed that manufacturing contracted for the first time in five months in July 2016, a private-sector gauge of factory activity has shown an uptick of manufacturing activity for the first time in 17 months!
Whatever the case may be, economists opine that since China is the largest buyers of most metals and bulk commodities, weaker imports could sound the death knell for an over-supplied market dependent on Chinese demand to ease the glut. Even as China chases its annual growth target of 6.5% to 7.0%, the only hope is that a resurgence of demand from the nation would re-balance markets in the coming months.