China's trade balance surged once again, spiking to near the highest on record according to data released this weekend, driven by a collapse in imports (and a roughly in line export print). Exports dropped 2.5% YoY, dropping for the 4th month of last 5 but it was Imports that createred. Down a stunning 18.1% YoY (the 5th drop in a row) China imports collapse reflects both volume and price effects and crucially, as Goldman notes, volume effects may be even more critical. Hidden deep inside the data, China exposed the oil market's greatest fear - it appears to be done restocking its SPR [8].
As Goldman Sachs reports,
The weakness in import growth is likely to be a reflection of both price and volume effects (an official price index is not yet available for May) -- though volume effects might be more important this month amid modestly higher oil prices. Based on the released breakdown, the value of crude oil imports went down 50.3% yoy in May (vs. -43.9% yoy in April), cutting 6.3 percentage points from headline import yoy growth (in April it cut 5.6 pp). Imports of other major commodities such as steel and coal also declined further in yoy terms in May.
But while a lot of the drop in imports is related to price, it is the scale of plunge in volume that is of most concern...
[9]
The biggest YoY drop since 2013 and biggest MoM drop since 2010, strongly suggesting China is done (for now) filling its strategic petroleum reserve.
[10]
Which kicks yet another leg out from the under the "price of oil goes higher" meme.
Charts: Bloomberg
