China has shocked the world with a stunning collapse in international trade but there is some hope its continued domestic investment could help soften the blow to the Australian mining sector.
Economists, who had generally expected Chinese exports to rise by 1 per cent compared with the previous February, since this year did not include a holiday period, were stunned yesterday by a 25.7 per cent fall.
Imports plunged 24.1 per cent over the same period, while China's trade surplus was $US4.84 billion ($7.5 billion) last month, compared with $US39.1 billion in January.
"Clearly it is a negative," said ANZ's head of commodities research, Mark Pervan. "Our market is so leveraged to commodity movements or imports. Lower Chinese imports means lower Australian exports."
In a more positive sign, domestic investment in fixed assets grew by 26.5 per cent in January and February to a combined $US150 billion, as a huge stimulus package announced in November boosted spending on infrastructure.
But some analysts are sceptical that internal growth is strong enough to combat the effects of a decline in foreign trade.
China's power consumption - one of the best proxies for its industrial production - fell in January and in February by 3.7 per cent compared with last year.
Iron ore imports rose 22 per cent to a record 46.7 million tonnes last month but the market does not think such high figures are sustainable. "It may just really reflect a period of restocking after running down inventories," said an ABN Amro mining analyst, Warren Edney. "We'll probably see a lower number in the March month."
The spot iron ore price, which showed strong gains in January and early February, has since retreated to levels near the lows of November.
The market is starting once again to revise its expectations of the benchmark iron ore price downwards.
At Citi's Australia and New Zealand Investment Conference in London on Tuesday, BHP Billiton's head of non-ferrous metals, Andrew Mackenzie, warned that even if China' economy continued to grow, there was only so much it could do to counteract the massive downturns in developed economies. China consumes less than 50 per cent of the world's consumption of traded iron ore and less than 30 per cent of nickel and copper.
Paul Cavey, an economist with Macquarie Securities in Hong Kong, told Reuters it was difficult to see an improvement in Chinese economic statistics in the short term after it "spectacularly succumbed" to the global financial crisis on the export side.
"Import demand should begin to deteriorate again over the next couple of months," he said.
Mr Pervan said the latest figures from China showed that the decoupling theory so popular during the boom that said China would be relatively immune to a crisis in developed countries was dead.
Source: WA Today, West Australia
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