China’s iron ore imports surged 35.3 per cent in June as the world’s second-largest economy showed further signs of defying the economic fallout from the pandemic while maintaining strong demand for Australian commodities despite rising political tensions.
China Customs on Tuesday announced a surprise increase in imports for last month, and said exports also rose despite the massive disruption to the global economy wrought by COVID-19. By Tuesday, the pandemic had claimed a global total of at least 573,000 lives and infected more than 13 million.
With much of the world already in, or on the verge of recession, China is expected to report a recovery in second-quarter GDP on Thursday following a 6.8 per cent fall in the first quarter.
Iron ore, Australia’s biggest export to China, and other industrial commodities drove the increase in imports, which economists attributed to government fiscal stimulus programs designed to boost infrastructure spending and consumer confidence.
Analysts said demand for Australian iron ore would remain robust until mid-2021, due to a shortage of supply from Brazil, low Chinese iron ore inventories and stronger than expected steel production. They said Australia made up the bulk of China’s iron ore imports during the period, with shipments from Brazil hampered by coronavirus.
“The strong increase in iron ore imports will remain until the first half of 2021. China’s imports of Australian iron ore is not affected by the tense bilateral relationship,” Du Hongfeng, a senior analyst at trading and consultancy firm SteelHome, told The Australian Financial Review.
Xu Xiangchun, chief information officer at Chinese research firm MySteel, said growth in demand for iron ore would not be maintained at above 35 per cent, but would remain strong in coming months.
In May, Beijing’s stimulus measures, announced in its annual “Work Report”, included 3.75 trillion yuan ($800 billion) in special government bonds that would help fund infrastructure spending.
Warning on exports
China’s iron ore imports rose 35.3 per cent in June compared with the same month a year earlier. This compared with a 3.9 per cent increase in May. Iron ore imports for the first half rose 9.6 per cent to 547 million tonnes, while coal increased 12.7 per cent. Imports of natural gas rose 3.3 per cent.
Ongoing demand from China, where the government is spending heavily on infrastructure to prop up the slowing economy – along with pandemic- and accident-related disruption in Brazilian exports – helped push Fortescue Metals shares to a record high this week. Iron ore futures traded on the Singapore exchange touched $US108 a tonne.
While China has slapped restrictions on Australian beef and barley, its demand for iron ore has not slowed, despite tensions between Beijing and Canberra over Australia’s call for a coronavirus probe and the Morrison government’s support for Hong Kong residents seeking safe haven.
China said on Tuesday imports in June rose 2.7 per cent year-on -year in US dollar terms. This contrasted with a slump of 16.7 per cent in May and expectations of a 10 per cent fall this time.
China’s exports increased 0.5 per cent in June compared with a 3.3 per cent fall the previous month. China ramped up exports of medical equipment such as masks and ventilators when its factories reopened in March.
Economists said shipments of computers, mobile phones and home appliances also rose, with demand driven by Western consumers locked down in their homes.
However, Nomura warned the increase in exports was not sustainable, even as other economies opened up. It now expects Chinese imports to decline in the second half by 1 per cent compared with previous forecasts for a 0.7 per cent drop.
Total trade between Australia and China rose 1.8 per cent year-on-year to 554 billion yuan ($114 billion) for the six months to June 30, according to Chinese government data.
China’s imports of Australian goods fell 0.1 per cent. Imports from Canada, which has been slapped with restrictions or bans on some of its China trade because of political tensions, fell 32.9 per cent in the same period.
Australia will be watching China’s first-half GDP numbers closely on Thursday, when the government is expected to report year-on-year expansion of 3 per cent or more, a reversal of the 6.8 per cent drop in the first quarter.
While there are fears about rising unemployment, China’s economy has been showing signs of recovering in the past two months, although there is still some scepticism over the official government data.