LAUNCESTON, Australia, March 11 (Reuters) – The reaction of commodities to the Chinese trade data show that sentiment and fundamentals are diverging, with the fear trade winning so far.
No matter which way you try and slice and dice it, China’s imports of commodities in the first two months of the year have been surprisingly strong.
But the market has chosen rather to focus on the February slide in merchandise exports from the world’s second-biggest economy, concluding that all isn’t well and therefore commodity imports will tumble in the coming months.
Add to this the view that much of the strength in imports of copper and iron ore was related to accessing financing rather than underlying demand, and suddenly you can turn large gains in imports into something negative for future demand.
The issue is whether the market is reading it correctly and the outlook for Chinese commodity demand is weak, or whether a more modest pullback in import growth is likely in the months ahead.
Much will depend on the state of the overall economy, and here the risk is that the 18.1 percent drop in exports in February from a year earlier is a harbinger of bad economic news.
While the Lunar New Year, which started in late January but was mostly in early February, shouldered much of the blame for the disappointing export numbers, it’s worth noting that exports for the first two month of 2014 were still 1.6 percent below that for the same period last year.
This does fit with recent softness in both the HSBC and official Purchasing Managers’ Indexes, but so far the economic numbers are far from catastrophic.
The export numbers also showed a rise of 1.3 percent in the value of shipments to the United States and a gain of 4.6 percent for the European Union in the first two months of the year, indicating recovery in demand from the developed economies.
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