By Don Miller
Associate Editor
Money Morning
China imported record amounts of copper and iron ore in April as its mammoth stimulus program stoked its foundries and mills. But the nation's exports remained weak, leaving some to wonder how much longer the country can keep its economic fires lit without an increase in global consumption.
China's voracious appetite for commodities drove the second-biggest monthly haul of crude oil and tripled aluminum imports, but very little steel, aluminum and coal went the other way.
"Industrial production is coming online and demand is rising. But sentiment may be tempered by the view that some of the material is being stockpiled and… consumption hasn't risen as quickly as imports," Ben Westmore, commodities economist at National Australia Bank, told Reuters.
Copper imports jumped 6.6% from March to April, to 399,833 tons; iron ore imports soared 9.4% to 57 million tons, and crude oil imports hit 3.93 million barrels per day, a 2% rise, customs data showed.
But China's exports fell more sharply than most analysts had expected in April. The value of goods and services leaving the country was down 22.6% compared to last year, whereas economists had expected an 18% drop.
The drop in exports is leading some experts to speculate that China's economy is being sustained solely by the $585 billion stimulus package the government is quickly deploying throughout the country. The stimulus program is heavily laden with infrastructure projects, explaining in part China's huge demand for raw materials.
But some of that spending is spilling over into sales of construction equipment, much of it imported from the United States. Caterpillar Inc. (NYSE: CAT), the world's largest maker of bulldozers and excavators, is among several companies already pointing an improvement in sales to China.
"March and April were pretty strong months for sales in China," Caterpillar Chief Executive Officer James Owens said on an April 21 conference call with analysts. Owens contends China's stimulus spending for public works projects is working more quickly than in the U.S.
"When they say 'shovel ready,' they mean nine weeks, not nine months," he said.
Still, the drop in exports could put a chill on China's imports of raw materials and construction products if consumption doesn't pick up in the West.
"Although the downward trend is in line with our expectations the fall in exports is steeper than we anticipated," Wang Xiaohui, an analyst at Sinolink Securities in Shaghai told Forbes."Exports are likely to drop further in the near term as economic indicators in the United States and Europe, such as industrial output and retail sales, are not looking up."
The U.S. trade gap with China increased to $15.6 billion from $14.2 billion from March to April. The gain in imports from China overshadowed an increase in Chinese demand for American-made goods that pushed U.S. exports to the highest level since October.
But the recent stock market surge and other economic data lead Wang to conclude that the lull in U.S. demand for China's exports will be short-lived.
"In terms of exports, we're looking at a better second half than first half, with the U.S economy stabilizing, which will provide support to China," Wang said.
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