Chinese Trade Data Brings New Hope Even As Old Discrepancies Remain
Overnight equity markets are getting a lift from headline-making beats for
Chinese exports and (more importantly) imports. A 10.9% YoY rise in imports
(compared to a +1.0% expectation) and a surge in copper ‘demand’ has the media
calling the turn on the global economy …
(But,) fourth, the data for Copper imports (which is being extrapolated into some indicator global growth renaissance) – which have risen at a remarkable 52% in the last 2 months … is perfectly reflective of the growth in cash-for-copper that occur when Chinese liquidity conditions get tight…
Via Goldman Sachs,
The recent tightening in Chinese financial conditions is, somewhat counter intuitively, likely to be raising Chinese demand for non-domestic (LME priced) copper, via ‘Cash For Copper’ (CFC) financing. In essence, some Chinese market participants – particularly those that are highly leveraged – are buying non-domestic copper material in order to raise CNY cash, in a development we have not seen since mid-2011. Specifically, CFC financing … involves the purchase and importation of non-domestic copper into China, the immediate sale of this copper into the Chinese domestic market post-importation (for immediate CNY cash), and a 3-6 month loan at foreign interest rates issued by an onshore bank. In this way CFC’s are a combination of the China/ex-China price and interest rate differentials. …
The recent increase in short-term Chinese rates has resulted in CFC’s being highly profitable (resulting) in an opening of the interest rate adjusted copper import arbitrage … raising China’s demand for non-domestic material … . In this way, interest rates differential changes, via CFC financing, can change where global copper inventories are located (today there is a pull on non-domestic copper inventories into the domestic market).
(So… Not an uptick in economic activity, but a change in warehouses.)
Icliks Incoming 