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China’s economic woes and the surprising coal surge

The Chinese economy took a battering in June from falling demand, falling inflation, now on the edge of debilitating deflation, weak imports down for another month, and exports slumping more than 12%.

All the optimism at the start of 2023 about a rebound post-Covid has vanished, and it is clear the economy is under rising pressure from factors beyond the control of President Xi and his government.

Amid all the gloom, demand for iron ore held up for another month in June, and the performance so far in 2023 has been expectedly solid, which is good news for BHP, Rio Tinto, and Fortescue. However, the contraction in exports was at the fastest pace since the start of the Covid-19 pandemic as weak demand inside China and in some of its major external markets hit demand.

Thursday’s weak trade data release is yet another indication that China’s leaders will not be able to rely on external factors in reviving the faltering domestic growth. The decline in June imports was also more severe than expected, suggesting local demand continues to weaken.

The dollar value of China’s exports plunged 12.4% in June from a year ago, customs data showed Thursday. This is a far bigger drop than the forecasts for a 9.5% decline in a Reuters poll and the 7.5% annual slump in May.

The percentage decline was the biggest that the world’s second-largest economy has recorded since February 2020 – the first month of the pandemic.

Imports fell 6.8% in June from a year ago, also worse than the forecasts for a 4% decline and the 4.5% drop in May.

China’s exports to the US slumped 24% in June to $US42.7 billion from a year ago, while imports fell 4% to nearly $US14 billion.

China’s exports to the 10-member ASEAN bloc fell by 17% to $US43.3 billion in June from a year ago, while imports fell by 4% to $US34.1 billion.

The weak data saw China’s monthly trade surplus dip to just over $US70 billion from more than $US97 billion in the same month last year. The June performance was up around 10% from the $65.8 billion in May.

Despite the weakness in demand, Chinese imports of iron ore held up remarkably well in June.

China’s imports of iron ore climbed by 7.4% in June from a year before to 95.52 million tonnes last month, up from the 88.97 million metric tons in June 2022, the General Administration of Customs said.

The June volume was slightly lower than the 96.18 million metric tons imported in May, according to customs data.

That saw China import 576.14 million tonnes of ore in the first half of 2023, 7.7% higher than the same period a year earlier.

That is not reflective of weak demand from key sectors such as property and construction.

China’s copper imports – an important barometer of the health of activity and demand in the Chinese economy – fell 16.4% in June from a year earlier, thanks to a combination of strong domestic production and weak demand in the world’s top consumer of the metal.

Imports of unwrought copper and copper products totaled 449,649 tonnes in June.

June’s imports marked a marginal increase of 1.3% from 444,010 tonnes in May.

Chinese exports last month of unwrought aluminium and aluminium products, including primary, alloy, and semi-finished aluminium products, were 492,631 tonnes, down 18.9% from June 2022.

China’s crude oil imports in June jumped 45.3% on the year, despite weak domestic demand.

Crude imports in June totaled 52.06 million tonnes, data from the General Administration of Customs showed. But that was up from June 2022 when demand for oil was weak because of the harsh Covid lockdowns.

Total imports for the first half were 282.1 million tonnes, up 11.7% from the 252.52 million in the first six months of 2022 (which was impacted by the tough Covid restrictions).

China’s coal imports in June were boosted by heatwave conditions in some areas of the country. The country imported 39.81 million tonnes of coal last month, up from 39.58 million tonnes in May. Coal imports over the first half of 2023 totaled 221.93 million tonnes, almost double the level a year ago.