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Chinese industrial commodities sink as US tariff war continues

By Amanda Cooper

Chinese exports dropped unexpectedly in November, led by declines in demand for metal and energy products, pushing down the price of oil, gasoline and major base metals

The oil price slid by as much as 1 per cent on Monday, while other industrial raw materials such as gasoline and steel-making ingredients including zinc and nickel tumbled, following the release of Chinese data that showed a steep decline in demand for products from the world’s second-largest economy last month.

Brent crude futures dropped 0.9 per cent to around $63.80 a barrel, while US crude futures dropped by 1.2 per cent to $58.50 a barrel, in spite of the rise of nearly 7 per cent in Chinese imports of crude last month.

However, the 1.1-per cent year-on-year drop in total Chinese exports to $221.74 billion in November reported by the General Administration of Customs confounded expectations for an increase of 1 per cent and marked the fourth consecutive month of yearly declines in exports, reflecting the weaker global economic backdrop and the effects of the nearly-18-month old trade war with the United States.

“It is evident that the 18-month tariff war with the US is taking its toll on China’s export sector and could imply that they may be more ready to get a Phase 1 deal signed off as soon as possible,” said OANDA analyst Andrew Robinson. “That might be construed as positive for risk, but the headline data is dominating sentiment for the time being.”

The oil price is highly sensitive to any signs of unexpected weakness or strength in the Chinese economy.

Trading Economics noted exports declined by nearly 16 per cent for unwrought aluminium and products, while coke and semi-coke exports fell 63 per cent and steel products dropped nearly 14 per cent.

Both Washington and Beijing have reiterated in recent weeks that a preliminary “phase one” deal was imminent. But with another round of US tariffs on about $160bn of Chinese goods set to kick in on December 15, sentiment among traders and investors has been more cautious.

Unsurprisingly, the Chinese customs data showed exports to the United States fell by 23 per cent, while those to Japan dropped 7.8 per cent and sales to the European Union declined by 3.8 per cent.

On a more positive note, imports of copper ores and concentrates rose by 27 per cent in November, which in turn lent some support to copper futures from among the London Metal Exchange complex. Three-month copper futures were last up 0.3 per cent at $6,048 a tonne, close to their highest since June this year. China is the world’s largest importer of copper, which is used in anything from electronics to construction.

Three-month zinc futures were last down 0.5 per cent at $2,229 a tonne, while nickel futures dropped by 1.3 per cent to $13,310 a tonne and aluminium fell 0.1 per cent to $1,759 a tonne.

Imports of refined energy products dropped by nearly 23 per cent, while purchases of foreign fuel oil dropped by nearly 30 per cent and those of steel products declined by 1.4 per cent. Imports of so-called rare earth metals, used predominantly in batteries and whose use in the electric-vehicle sector has boomed in recent years, fell by almost 43 per cent.

Benchmark US gasoline futures lost 1.15 per cent to trade around $1.6285 a gallon, while ICE gasoil futures, a key benchmark for refined middle distillates, dropped 0.7 per cent to trade around $583.25 a tonne.

FURTHER READING: Tokenised commodities: what you need to know

FURTHER READING: Upbeat Chinese factory data boosts markets

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