Tough times for commodity firms

2013-07-22

China's slower pace of commodity imports during the second quarter is likely to continue in the second half of the year, due to weak demand and slower growth, experts said on July 11.

"China's dwindling demand for commodities has come as a big blow for most of the major global commodity suppliers," says He Rongliang, an analyst with the Distribution Productivity Promotion Center of China Commerce.

"The negative impact may continue for some time, as there is no headwind for higher economic growth. China's imports of natural resources and energy products are not expected to increase significantly in the near future."

Slower demand from China, one of the major buyers of commodities such as iron ore, copper, crude oil and soybean, cannot be made up by any other single economy, he says.

The economic growth of most of these resources exporters is closely related to China's economic performance and it has been remarkable in recent years, says Zhang Jianping, a researcher from the Institute for International Economic Research under the National Development and Reform Commission.

Leading resources exporters such as Brazil, South Africa and Australia will face the maximum impact from China's shrinking commodity demand, says Wang Haifeng, a researcher with the Institute for International Economic Research under the National Development and Reform Commission.

"China's buying of energy products from Africa will keep growing this year, but the pace will be slower than last year," says Cheng Zhigang, secretary-general of the China-Africa Industrial Cooperation and Development Forum.

The nation's imports from South Africa in the first half of this year rose 21.6 percent from a year earlier, slower than the 35.7 percent growth in the first five months or the 39 percent increase throughout 2012, according to the General Administration of Customs.

"China's slower economic growth and depressed international commodity prices may cloud African growth prospects this year," says Jin Baisong, deputy director of the Department of Chinese Trade and Studies at the Chinese Academy of International Trade and Economic Cooperation.

The International Monetary Fund said in its World Economic Outlook, released on July 9, that growth in sub-Saharan Africa will be weaker, as some of its largest economies (Nigeria, South Africa) are struggling with domestic problems and weaker external demand. Growth in some economies in the Middle East and North Africa remains weak because of difficult political and economic transitions.

"The second half of the year will see China-Africa trade losing further momentum due to the sluggish demand from China," Jin says.

Cheng, however, feels that China's economic slowdown will not have a huge impact on African economies and the overall prospects for 2013 still look bright.

He added that China will buy more African products and bilateral trade will probably hit $250 billion this year, with a larger trade surplus to Africa.

China has been Africa's largest trade partner for the past four years. Last year, China-Africa trade was around $198.5 billion, up 19 percent year-on-year, with China enjoying a trade deficit of $27.9 billion, according to the Ministry of Commerce.

Li Xiaobing, deputy head of the ministry's department of Western Asian and African affairs, said on July 13 that China-Africa trade has several "arduous tasks" to deal with despite rapid growth in recent years.

The regional political and security situation in Africa is not too stable at present while sentiment against African resources exports has been increasing, along with stiff global competition, Li says.

Australian Prime Minister Kevin Rudd said on July 11 that "the China resources boom is over from this year. Though resource exports and commodity shipments are up, the prices we receive for them have now fallen by almost 25 percent since their peak and may well fall further.

"Right now, we find ourselves at a crossover point for our national economy ... If we make the wrong decisions now, we will be living with those decisions for the decade ahead."

The 4-trillion yuan ($652 billion) emergency stimulus package launched by the Chinese government during the global financial crisis had boosted infrastructure construction and the import of natural resources and raw materials. However, the new leadership is keen on shifting economic growth from an investment-and export-driven model to a consumption-oriented pattern.

China's imports in June declined 0.7 percent from a year earlier after a 0.3 percent drop in May, according to the General Administration of Customs. Crude oil imports in the world's second-largest oil consumer decreased 1.4 percent year-on-year to 140 million metric tons in the first half of this year while import prices dropped 7.6 percent year-on-year. Net crude purchases in June fell to the lowest rate in three months because import-processing refineries are undergoing maintenance work in June and July.

Copper imports plunged 20 percent year-on-year in the first half of the year with the average import price down 3.4 percent year-on-year. Iron ore imports rose 5.1 percent year-on-year in the same period with the import price declining 4.6 percent year-on-year, according to the customs administration.

"The reduced industrial activities in China have subdued imports of raw materials," Zheng Yuesheng, a Customs spokesman said during a media briefing on July 10. "Meanwhile, overcapacity in industries including steel, cement, shipbuilding and the photovoltaic industry have reduced the profitability of enterprises and demand for raw materials."

In the World Economic Outlook released on July 10, the International Monetary Fund cut its forecast for China's economic growth this year to 7.8 percent from 8.1 percent, and downgraded its GDP prediction for 2014 to 7.7 percent from 8.3 percent. It added that the outlook for many commodity exporters (including those among the BRICS countries) has also deteriorated due to lower commodity prices.

"The weak recovery in global economy has been responsible for China's shrinking demand for commodities as most of the imports are used for making manufactured exports to developed economies," Zhang from the NDRC research institute said. "Meanwhile, the price decline in imported commodities has also constrained importers' purchasing powers."

The average price of imported commodities has been declining for about 15 months and dropped 3.9 percent from a year earlier in June, according to the Customs.

Source from : China Daily

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