China: Ready To Rebound?
Commodity bulls received some great news last week…
China revealed stronger than expected import/export data in their merchandise trade balance report. April exports grew by 0.9% year-over-year while imports jumped by 0.8%.
Now I’ll admit, at first glance the numbers don’t look all that hot.
But dig a little deeper and you’ll find something interesting…
The consensus estimate going into the report was for a year-over-year export drop of 3.5%, and an import downdraft of 3.2%. Clearly, the Chinese economy performed much better in April than economists were predicting.
And that’s not all…
April’s trade balance made a dramatic turnaround from March’s highly disappointing report.
In case you missed it, exports shrank 6.6% in March while imports plummeted 11.3%. The bearish report had plenty of investors worried China was on the verge of a major economic slowdown.
If you’re concerned about China’s growth, take solace in the fact year-over-year exports to the US jumped to 12% in April. At the same time, the country’s export to the European Union surged 15.2%.
This data not only supports the idea that China’s economy is picking up steam, but so are the US and Europe’s.
What’s all this information have to do with commodities?
In case you’re unaware, China is one of the largest commodity consumers on the planet.
According to the International Monetary Fund (IMF), nearly 40% of global copper and aluminum production goes to this one country. What’s more, China consumes approximately 50% of the world’s cotton and coal production.
Of course, China is a big (and growing) consumer of soybeans, wheat, and crude oil.
So it goes without saying the Chinese economy plays a huge role in the supply/demand fundamentals for various hard assets.
Keep an eye on Chinese economic data for the next few months…
The April export/import rebound could be the start of a new bullish trend in Chinese economic growth. Chinese authorities are working feverishly to reform their country’s economy away from investment-led growth to that of internal consumption-led growth.
Economists see the changes creating an initial drag on the Chinese economy, which is likely what we’ve seen in recent months. However, the long-term prospects for growth will likely improve once the economy is successfully restructured.
If Chinese policy makers succeed, be prepared for an upward ride in various hard asset markets later this year!
Until Next Time,
Justin Bennett
Category: Commodities
