China shocked markets with the release of surprisingly weak trade data over the weekend. February’s imports figures rose 10.1% as expected, the real sting however came from the export numbers which had been anticipated to rise by up to 7.5% but instead plunged by a not insignificant 18.1%. The upshot was a dramatic swing in the trade balance that created a wholly unexpected deficit.
The manufacturing prominence of China has given it until now an almost insatiable appetite for raw materials. Rare Earth and Industrial Metals are among the leading commodity inputs into the Chinese industrial process. The sudden and dramatic fall off in international demand for Chinese finished goods has sent some shockwaves through the Metals markets.
The price of Copper has been falling without pause for much of the week. This morning in London trading the commodity recorded a low of $2.908, a level not seen in over three and a half years. More concerning for the price of this Metal however is that the long-term support line has finally given way.
Copper bounced off the $3.00 level on two occasions since it’s initial run up began in 2009. In late 2011 and again in early 2013 this Industrial Metal tested this key support only to recover on both occasions as buyers saw value for money. Not so on this occasion, technical trading cannot compete with a fundamental shock such as this current plummet in demand.
Longer term this fall into an export lead trade deficit will place further pressure on the Peoples Bank of China (PBoC) to accelerate the depreciation of the Yuan. This would create an uptick in the demand for Chinese goods that in turn will create a production driven need for raw materials. This would necessarily provide a floor for Copper prices. The unknown quantity here however is not so much if but when the PBoC is likely to act.
An obvious caveat to watch as this plays out is that a weaker Yuan would also drive up the import price for raw materials. Should Industrial Metal exporting nations not take the appropriate steps to weaken their own currencies there exists the real risk that Chinese manufactures seek alternative domestic raw materials at the expensive of costly imports.
To contact the reporter of this story: James Brennan at firstname.lastname@example.org