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 Richmans' Trade and Taxes Blog

China's temporary trade deficit largely due to stockpiling of commodities
Howard Richman, 4/18/2010

Here's an excerpt from an April 12 commentary (Unpacking China's Trade Deficit) by Rachel Ziemba from Roubini' Global Economics:

The jury is still out on whether the import surge (US$119 billion in March) implies a consumption boom. Imports were very strong, both on a y/y and on an adjusted basis. Moreover, it’s striking to me how strong in volume and price terms commodities have become in China's trade. Five key commodities (oil, oil products, Iron ore, Steel, copper) accounted for about US$25 billion or about 20% of China's March import tally. Oil and oil products alone accounted for over US$14 billion. Meanwhile imports of aluminum, coal, and iron ore are on the way up, as volumes of fuel commodities remain near record highs, and metal imports have climbed from their turn of the year lows....

(C)ommodity orders tend to be stronger in March/April as infrastructure projects start up and stock piling begins. The sheer increase in crude oil import volumes, which have climbed 39% y/y in Q1 2010, may reflect a) still high refinery runs in China and b) filling of the petroleum reserve. Moreover, with threats of tighter credit policy, there may have been an impetus to continue to build up commodities. On the metals side, the greatest increases were in copper and aluminum scrap whose volumes rose 34% and 100% y/y in Q1.

China's stockpiling of commodities will provide a temporary boom in the commodity exporting countries, especially Brazil, Russia and OPEC. Those countries will, in turn, temporarily buy more American exports. Then, when China slows its imports, the prices of the commodities will decline again, American exports may decline, and China may return to its role of being the black-hole into which the world's demand disappears.