China Exports May Lose Pace on Europe Crisis, Yuan (Update1) -Shanghai Metals Market

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China Exports May Lose Pace on Europe Crisis, Yuan (Update1)

Industry News 09:01:07AM Jul 12, 2010 Source:SMM

July 12 (Bloomberg) -- China's unexpected rebound in overseas shipments to a record last month may lose pace as the European crisis, a moderating U.S. recovery and yuan gains curb demand for goods from the world's largest exporter.

China's overseas sales jumped 43.9 percent in June from a year earlier to $137.4 billion and the trade surplus more than doubled to $20 billion, the highest level in eight months, the government said July 10.

Customs officials, while hailing a recovery in exports to pre-financial crisis levels, said Europe's debt woes and the "sharp decline" in the value of the euro have started to affect China's sales to that region. Diminished overseas demand, along with cooling domestic investment, increase the odds that Premier Wen Jiabao may unwind some policy tightening and limit further yuan gains to sustain growth.

"Exports may see a sharp deceleration after July as demand in Europe and the U.S. weakens and a stronger Chinese currency, higher wages and reduced export tax rebates erode the competitiveness of Chinese goods," said Shen Jianguang, Hong Kong-based economist at Mizuho Securities Asia Ltd. "The government may have to intensify efforts to boost the domestic economy as they have limited control over external demand."

Exports to the European Union, China's biggest market, grew at a slower pace than overall shipments in June, indicating the impact of the sovereign-debt crisis and fiscal tightening is starting to bite, Huang Guohua, head of the customs bureau's statistics analysis, told state television on July 10.

Emerging Markets

Sales to the EU and U.S., China's two biggest markets, rose by about 40 percent in June, customs reported. Exports to Brazil more than doubled, those to Russia jumped 84 percent and shipments to India surged 59 percent as China targeted emerging markets to cushion reduced demand from developed economies.

A government report today showed that property prices slowed for a second straight month in June, underscoring signs that China's expansion has passed its peak. Values in 70 cities rose an average 11.4 percent in June from the previous year, and fell 0.1 percent from May 2010, according to the statistics bureau's newspaper, China Information News.

"Emerging markets will be an inadequate substitute for fading demand from the EU and U.S.," said Tom Orlik, Beijing- based economist at Stone & McCarthy Research Associates. He estimates Brazil, India and Russia bought about 5 percent of Chinese exports in 2009.

Tax Rebates

A bigger-than-forecast drop in consumer borrowing in the U.S. in May and comments from Marks & Spencer Group Plc, the U.K.'s largest clothing retailer, last week that it's "cautious" about the outlook for consumer spending in Britain, add to evidence exports to developed economies may slow.

The scrapping of tax rebates on a range of goods including steel products from July 15 may also hurt overseas sales.

"We suspect stronger-than-expected exports might be the result of the frontloading of commodity-intensive product exports as a result" of the tax change, Goldman Sachs economist Song Yu wrote in an e-mailed note on July 10. Steel-product exports more than doubled in the first six months, the customs bureau said July 10, without giving a year-earlier comparison for June.

Import growth slowed for a third month in June from a year earlier, and the volume of iron-ore and copper purchases by Chinese companies showed their third monthly decline, customs bureau data showed, indicating the domestic economy is responding to government curbs on lending and investment in property and energy-intensive industries.

Manufacturing Slows

Manufacturing expansion slowed for a second month in June as output and export orders weakened, a purchasing managers' index from the Federation of Logistics & Purchasing showed.

Money supply growth last month moderated for the seventh straight month and new yuan-denominated loans of 603.4 billion yuan ($89 billion) in June were the smallest in three months, central bank data showed yesterday. The nation's record foreign- exchange reserves grew at the slowest pace in 11 years in the second quarter to $2.45 trillion, according to the data.

Companies including Jiangsu Shagang Group Co. and Nanjing Iron & Steel Co. have put off iron-ore purchases, choosing to run down inventories. Steelmakers are likely to cut output this quarter because of weak demand from auto and appliance makers, Xu Lejiang, chairman of Baosteel Group Corp., the country's second-biggest mill, said June 8.

Forecast Changes

In the past two months, economists have cut their estimates for China's economic expansion after the government curbed bank lending and cracked down on speculation in the real-estate market that helped push housing prices to records.

Growth may decelerate to 9 percent in the fourth quarter, from 11.9 percent in the January-March period, according to a Bloomberg survey of economists. The statistics bureau is due to announce second-quarter gross domestic product data this week.

The surge in exports in June and the doubling of the trade surplus may prompt U.S. lawmakers to intensify pressure on China to step up the pace of yuan appreciation even as the outlook for overseas demand cools, economists said.

Seasonally adjusted exports in June rose 4.2 percent from May after gaining more than 10 percent in the previous two months.

"The month-on-month data shows that the rebound momentum is losing steam," said Mizuho's Shen, who previously worked at the International Monetary Fund and the European Central Bank. With export growth possibly dropping to less than 10 percent later this year, "the government may strictly control the pace of the yuan's gain, or even allow some depreciation of the currency if export data deteriorates too sharply," he said.

Trade Deficit

China on June 19 indicated it was ending the yuan's two- year peg to the U.S. dollar and has since allowed it to appreciate 0.8 percent. Still, the U.S. Treasury Department said July 8 the Chinese currency "remains undervalued."

"China has reported another strong trade surplus, and next week we are going to see another large U.S. trade deficit. This contrast will likely add to the international pressure on Beijing to allow further currency gains to make a bigger contribution to global growth," said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada.

 

Key Words:  import export 

China Exports May Lose Pace on Europe Crisis, Yuan (Update1)

Industry News 09:01:07AM Jul 12, 2010 Source:SMM

July 12 (Bloomberg) -- China's unexpected rebound in overseas shipments to a record last month may lose pace as the European crisis, a moderating U.S. recovery and yuan gains curb demand for goods from the world's largest exporter.

China's overseas sales jumped 43.9 percent in June from a year earlier to $137.4 billion and the trade surplus more than doubled to $20 billion, the highest level in eight months, the government said July 10.

Customs officials, while hailing a recovery in exports to pre-financial crisis levels, said Europe's debt woes and the "sharp decline" in the value of the euro have started to affect China's sales to that region. Diminished overseas demand, along with cooling domestic investment, increase the odds that Premier Wen Jiabao may unwind some policy tightening and limit further yuan gains to sustain growth.

"Exports may see a sharp deceleration after July as demand in Europe and the U.S. weakens and a stronger Chinese currency, higher wages and reduced export tax rebates erode the competitiveness of Chinese goods," said Shen Jianguang, Hong Kong-based economist at Mizuho Securities Asia Ltd. "The government may have to intensify efforts to boost the domestic economy as they have limited control over external demand."

Exports to the European Union, China's biggest market, grew at a slower pace than overall shipments in June, indicating the impact of the sovereign-debt crisis and fiscal tightening is starting to bite, Huang Guohua, head of the customs bureau's statistics analysis, told state television on July 10.

Emerging Markets

Sales to the EU and U.S., China's two biggest markets, rose by about 40 percent in June, customs reported. Exports to Brazil more than doubled, those to Russia jumped 84 percent and shipments to India surged 59 percent as China targeted emerging markets to cushion reduced demand from developed economies.

A government report today showed that property prices slowed for a second straight month in June, underscoring signs that China's expansion has passed its peak. Values in 70 cities rose an average 11.4 percent in June from the previous year, and fell 0.1 percent from May 2010, according to the statistics bureau's newspaper, China Information News.

"Emerging markets will be an inadequate substitute for fading demand from the EU and U.S.," said Tom Orlik, Beijing- based economist at Stone & McCarthy Research Associates. He estimates Brazil, India and Russia bought about 5 percent of Chinese exports in 2009.

Tax Rebates

A bigger-than-forecast drop in consumer borrowing in the U.S. in May and comments from Marks & Spencer Group Plc, the U.K.'s largest clothing retailer, last week that it's "cautious" about the outlook for consumer spending in Britain, add to evidence exports to developed economies may slow.

The scrapping of tax rebates on a range of goods including steel products from July 15 may also hurt overseas sales.

"We suspect stronger-than-expected exports might be the result of the frontloading of commodity-intensive product exports as a result" of the tax change, Goldman Sachs economist Song Yu wrote in an e-mailed note on July 10. Steel-product exports more than doubled in the first six months, the customs bureau said July 10, without giving a year-earlier comparison for June.

Import growth slowed for a third month in June from a year earlier, and the volume of iron-ore and copper purchases by Chinese companies showed their third monthly decline, customs bureau data showed, indicating the domestic economy is responding to government curbs on lending and investment in property and energy-intensive industries.

Manufacturing Slows

Manufacturing expansion slowed for a second month in June as output and export orders weakened, a purchasing managers' index from the Federation of Logistics & Purchasing showed.

Money supply growth last month moderated for the seventh straight month and new yuan-denominated loans of 603.4 billion yuan ($89 billion) in June were the smallest in three months, central bank data showed yesterday. The nation's record foreign- exchange reserves grew at the slowest pace in 11 years in the second quarter to $2.45 trillion, according to the data.

Companies including Jiangsu Shagang Group Co. and Nanjing Iron & Steel Co. have put off iron-ore purchases, choosing to run down inventories. Steelmakers are likely to cut output this quarter because of weak demand from auto and appliance makers, Xu Lejiang, chairman of Baosteel Group Corp., the country's second-biggest mill, said June 8.

Forecast Changes

In the past two months, economists have cut their estimates for China's economic expansion after the government curbed bank lending and cracked down on speculation in the real-estate market that helped push housing prices to records.

Growth may decelerate to 9 percent in the fourth quarter, from 11.9 percent in the January-March period, according to a Bloomberg survey of economists. The statistics bureau is due to announce second-quarter gross domestic product data this week.

The surge in exports in June and the doubling of the trade surplus may prompt U.S. lawmakers to intensify pressure on China to step up the pace of yuan appreciation even as the outlook for overseas demand cools, economists said.

Seasonally adjusted exports in June rose 4.2 percent from May after gaining more than 10 percent in the previous two months.

"The month-on-month data shows that the rebound momentum is losing steam," said Mizuho's Shen, who previously worked at the International Monetary Fund and the European Central Bank. With export growth possibly dropping to less than 10 percent later this year, "the government may strictly control the pace of the yuan's gain, or even allow some depreciation of the currency if export data deteriorates too sharply," he said.

Trade Deficit

China on June 19 indicated it was ending the yuan's two- year peg to the U.S. dollar and has since allowed it to appreciate 0.8 percent. Still, the U.S. Treasury Department said July 8 the Chinese currency "remains undervalued."

"China has reported another strong trade surplus, and next week we are going to see another large U.S. trade deficit. This contrast will likely add to the international pressure on Beijing to allow further currency gains to make a bigger contribution to global growth," said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada.

 

Key Words:  import export