Daily Sources 5/12

1. CHINESE EXPORTS AND IMPORTS DOWN YEAR OVER YEAR, BUT IMPORTS ARE UP FROM MARCH, SEEN BY MANY AS A 'GREEN SHOOT'

Andrew Batson and Terence Poon at the Wall Street Journal report that Chinese exports fell 22.6% from a year earlier to $91.94 billion in April from roughly $117.3 billion. China's April imports sank 23% to $78.8 billion from the roughly $102.3 billion imported a year previous, but were up 9.9% from imports of $71.73 billion in March. Rebecca Wilder at News N Economics plots a graph of percentage import and export growth in dollars from Jan 2001:



Ms Wilder is encouraged by the relative recovery in imports, commenting:

"[I]mport growth surged. Now, this could be driven by several factors--anything that might affect the real exchange rate; however, it does suggest that domestic demand may be improving. Furthermore, and in normal times, greater access to imports is good for efficiency, productivity, and growth."

Her post is worth reading in full. In a subscription only report, Hui Ching-hoo at Lloyd's List reports that domestic growth has lifted volumes at the northern port of Tianjin.

"Latest figures show cargo throughput increased 2% to 32.2m tonnes last month, while container volumes surged 5.3% to 756,660 teu."

Batson and Poon further note:

"Investment in real estate, one of the main forms of private-sector investment in China, was up only 4.9% from a year earlier in the January-April period, compared to overall growth of 30.5% in the four-month period. Still, it's an improvement from even weaker growth in previous months, and comes as purchases of housing and other property pick up. The volume of real estate sales jumped 39% from a year earlier in April after 16.4% growth in March, reversing several months of decline."

On the back of stimulus programs, fixed asset investment grew by an annual rate of 33.9% in April after posting a 30.3% gain in March.

2. LENDING SHARPLY DOWN AFTER NEARING STIMULUS TARGETS, BUT NEW LIQUID CAPITAL IN PRIVATE HANDS NOT AN ESPECIALLY LARGE SHARE OF THE NEW MONEY

However, the number of new loans overall--as noted last week in Daily Sources 5/7 #2--has fallen rather steeply from 591.8 billion yuan (~ $86.88 billion) in April or 68.7% from 1.89 trillion yuan (~ $277.5 billion) in March, with the People's Bank of China noting that 92% of the stimulus lending target had already been met in the first quarter. Andrew Batson at the China Journal gives a partial breakdown of the end recipients of the new money:

"[L]oans to households made up 25% of April’s new loans, compared to just 9.2% in the first quarter, as housing sales continued to pick up. And medium and long-term loans, which primarily go to infrastructure projects, accounted for 63% of new loans in April, up sharply from 37% in the first quarter. 'This shows that more liquidity is flowing into the real economy,' said Ha Jiming, chief economist of China International Capital Corp.

Short-term lending has gotten particularly close scrutiny recently. Many analysts suspect the recent surge in such financing is at least partly driven by banks trying to pad their books, and companies using the money for financial speculation. But it’s starting to fade in importance.

Discount bill financing--a form of short-term borrowing, usually against accounts receivable--accounted for 21% of April’s net new lending, down from 32% in the first quarter. And other short-term lending actually declined by 78.6 billion yuan [~ $11.54 billion] in April."

Kevin Hamlin at Bloomberg adds:

"[I]nvestment figures showed the number of new projects started in the first four months jumped 45% to 86,420 from a year earlier. Planned spending on those projects climbed 91% to 3.68 trillion yuan [~ $540.2 billion].

Investment in property development rose 4.9%, quickening from 4.1% in the first quarter. Railway spending surged 94.2%, along with a 36.6% rise for coal extraction and processing and a 26.3% gain for non-ferrous metal processing."

3. COMMODITIES PRICES UP ON BEIJING'S DIRECTIVE TO BUY EM CHEAP, BUT, MY GUESSTIMATE IS THAT THEY DO NOT ACCOUNT FOR THE LION'S SHARE OF THE VALUE OF NEW IMPORTS

Chuin-Wei Yap at China Journal reports that Chinese imports of metals have surged likely due to the decision in Beijing to stockpile in the low price environment.

"Customs data Tuesday showed China imported 399,833 metric tons of copper and related products, up 62% on year and beating the previous record set just in March. Iron ore imports also rose to a new record of 57 million tons, up 33% on year."

As noted yesterday--see Daily Sources 5/11 #6--Chinese April oil imports were up 13.6% from a year earlier. Though the annual rate of imports growth in April was negative 23%, of the roughly $7.07 billion increase in Chinese imports in April from March, China imported roughly 82 kb/d more crude oil in April than March, which, given a $1.89/b increase in average price, means China may have spent as much as an additional $341.2 million on crude or roughly 4.8% of the increase in the overall value of imports in April from March.

The annual increase of 13.6% in crude imports was about 470 kb/d or, given that front month WTI averaged just below $49.50/b in April, the additional volume cost roughly $700 million, or nearly 10% of the $7.07 billion increase in imports from March, but crude was averaging $112.46/b in April 2008, so in dollar terms crude probably represented $11.67 billion of import values in April 2008 versus roughly $5.9 billion in April 2009. Meaning that even with the additional volumes, April 2009 crude accounted for about a 7.5% share of China's import bill as opposed to 11.4% of the value of its April 2008 imports, or a third less.

4. IN JAPAN VISIT, PUTIN CONCLUDING A WIDE VARIETY OF ENERGY COOPERATION AGREEMENTS AND DEALS

Anna Shiryaevskaya at Platts reports that Russian Prime Minister Vladimir Putin invited Japanese participation in Russia's Siberian oil and gas infrastructure efforts. In televised comments in Tokyo, Putin said:

"The participation of Japanese companies in the completion of construction of the oil pipeline from East Siberia to the Pacific Coast is quite possible.
...
In general, Japanese partners could take part in projects to develop pipelines and other transport infrastructure. I mean from Sakhalin Island to Khabarovsk to Vladivostok."

AFP also reported that Putin told reporters today that he expected to sign a nuclear cooperation pact with Japan during his week-long visit.

"Japan and Russia are in the final phase of talks over a pact to promote the non-military use of nuclear power, such as for electricity generation.

The pact will pave the way for Tokyo to entrust Moscow with uranium enrichment and allow Japan to export nuclear power plant technology to Russia, Kyodo News said."

Meanwhile, Takeo Kumagai at Platts reports that the state-owned Japan Oil, Gas and Metals National Corporation (formerly the Japan National Oil Company--JNOC) today announced that it had entered into an agreement with the privately owned Irkusk Oil Company to jointly explore two blocks of land in Eastern Siberia for oil and gas.

"The partners believe that the blocks could hold combined reserves of up to several hundred million barrels because of their proximity to discovered oil fields such as the Yaraktinskoye and Verkhnechonskoye oil fields, JOGMEC said."

And Oleg Shchedrov at Reuters reports that Gazprom had concluded a memorandum of understanding with METI, Itochu Corp and Japan Petroleum Exploration Co to explore gas projects in eastern Russia.

"[Gazprom CEO] Alexei Miller told reporters the memorandum would explore ways to process gas near the Pacific city of Vladivostok for supply to consumers in Russia and the Asia-Pacific region, including Japan."

5. NORTH KOREAN FOOD WOES SET TO CONTINUE AND EVEN GROW, IN LARGE PART BECAUSE OIL FOR TRACTORS AND FERTILIZER IN SHORT SUPPLY

The Australian Broadcasting Corporation broadcast an interview by Sonja Heydeman of Lena Savelli, World Food Programme spokeswoman in North Korea, and Prof John McKay at Analysis International in Melbourne, regarding the worsening food situation in North Korea.

"HEYDEMAN: South Korea's unification ministry said in February that the North's food production would fall more than one million tons short of demand this year. However, the World Food Program's Lena Savelli says that figure underestimates the gravity of the situation.

SAVELLI: The latest assessment on crop production done by The Food and Agriculture Organization and the World Food Program puts the deficit even higher .. as high as 1.8 million metric tons of food for the agriculture year 2009. We are planning to feed as many as 6.2 million people in the DPRK in 2009. Unfortunately we have not been able to raise enough resources to reach all the affected people.

HEYDEMAN: While agriculture in North Korea needs to be addressed, Professor John McKay from Analysis International in Melbourne says there's a broader systemic problem that needs to be considered.

He says the agricultural sector has been dragged down by the crisis in other sectors, particularly the industrial sector.

McKAY: When the Soviet Union collapsed North Korea lost its major ally .. the ally that provided oil and technology and all kinds of things including cheap access to certain kinds of food but more particularly to access a cheap level a whole range of industrial products and those industrial products had ramifications for the agricultural sector. For example, fertilizer much of which is a by-product of petroleum is no longer available in North Korea. There is no fuel oil to drive the tractors and other kinds of machinery and that has had a major impact on North Korean productivity."

(h/t The Oil Drum's daily Drumbeat.)

6. SOUTH KOREA DEAL FOR OIL AND GAS EXPLORATION IN UZBEKISTAN, CONTINUING ASIAN TREND IN STATE-DRIVEN OVERSEAS RESOURCE INVESTMENTS

Charles Lee at Platts reports that KNOC--the Korean National Oil Corporation--has signed a preliminary agreement with Uzbekistan to explore five oil and gas blocs.

"The deal is part of South Korea's push for oil-for-infrastructure packages with underdeveloped countries under which it would offer aid to improve their poor social infrastructure, such as bridges and roads, in return for stakes in oil and gas fields."

7. POLAND MIGHT DELAY ENTRY TO EUROPEAN MONETARY UNION BY A YEAR, OR MAYBE MORE, FINANCIAL CRISIS WILL MAKE ENTRY UNDER CURRENT TERMS DIFFICULT FOR MANY PROSPECTS

Go Warsaw.com summarizes a Financial Times interview with the Polish Finance Minister, Jacek Rostowski, where he indicated that Warsaw may delay its entry into the monetary union by as much as a year from the current target date of Jan 1, 2012.

"'The Jan 1, 2012 is still realistic, but it may require some delay,' Rostowski said. 'The world crisis has come along and it would be naive to pretend it has had no effect. If we move it by one year that's not the end of the world,' he told the daily"

Go Warsaw notes that the Deputy Financial Minister also serving as the government's plenipotentiary for euro adoption told Reuters in April that entry might be delayed by between one and two years. (h/t Eurointelligence.) In a post on differentiating the economic situations in eastern Europe, Edward Hugh at Fistful of Euros plots a graph of Polish sentiment, per the EU Economic Sentiment Indicator, which is the best reading in the entire region:

"[The EU monthly Economic Sentiment Indicator] is a composite which measures sentiment in industry, services, construction, retail and building, and does at least have the advantage of offering us a rule of thumb guide as to how a country is handling the crisis."

8. KRG SAYS OIL EXPORTS VIA DEALS STRUCK WITHOUT BAGHDAD ARE FAIT ACCOMPLI

Carola Hoyos at FT Energy Source yesterday quoted from an interview Friday with Ashti Hawrami, the Kurdish Regional Government's oil minister, where he made plain that the flow of oil from fields contracted for without the previous consent of Baghdad was a fait accompli:

"The oil operations are under KRG control. The operators have been allowed to reach the point of tie-in to the pipeline. The operators have been notified (that June 1 is the first flow date).
...
The rough edges of course still need to be worked out. But if someone says, I wouldnt allow it. I would say, how would you not allow it. Are you going to shut down the Kirkuk pipeline? Once we do this (flow oil), it’s gone. period."

Meaning all Iraqi oil flow through the pipeline, not just the oil flowing from the Kurdish Autonomous Region.



9. IRAN OPEC GOV. MISUNDERSTOOD YESTERDAY, WANTS OPEC TO CUT, ROXANA SABERI RELEASE MAY MEAN THOSE WHO WANT DETENTE WITH THE US ARE WINNING THE POLITICAL BATTLE IN TEHRAN, THE LEADER OF THE REVOLUTION MAY, BY POSSIBLY ENDORSING AHMADINEJAD, BE ENDORSING ENGAGEMENT

Following yesterday's report that Iran would not be pushing for a further cut in production at the upcoming OPEC meeting--see Daily Sources 5/11 #5--Platts reports that Mohammad Ali Khatibi told the Iranian state news agency that, "with the increase of stockpile levels, cutting oil supply is necessary." Meanwhile, Nazila Fathi and Mark Landler at the New York Times report that analysts believe the decision to release Roxana Saberi was due to forces in favor of detente with the US winning out over the revanchists.

"'They understood that this wouldn’t help them,' said Thomas R. Pickering, a former undersecretary of state who has conducted informal talks with Iranians. 'They were asking the US to put words into action, and at the same time, they were going in the opposite direction.'

Mr. Ahmadinejad is seeking re-election on June 12. The letter he sent to the court was the first time he had intervened in a judicial case in his four years in office. Analysts said it would help his prospects if he could advance negotiations with the United States before the election.

'Mr. Ahmadinejad wants to take serious steps towards improving ties with the United States before the elections,' said Ibrahim Yazdi, a political analyst in Tehran. 'If he succeeds, it would be to his interest.'"

Kevin Sullivan at The Compass reports that Nader Uskowi believes that the Leader of the Revolution, Ayatollah Khamenei has come close to endorsing Ahmadinejad for President in the upcoming elections. I tend to think that the regime has little interest in a real and full coming to terms with the US, but these items argue otherwise, and perhaps the resetting of relations with Moscow (combined with electioneering requirements) is creating an atmosphere of urgency in Tehran.

10. PALM OIL CORPORATION PLANTATION EXPANSIONS CREATING TENSIONS IN INDONESIA AND MALAYSIA

Michael Casey at the Associated Press reports that the Borneo Resources Institute of Malaysia and the World Wildlife Fund in Indonesia that the search by palm oil companies for viable land is causing considerable strife.

"In the wake of that push, hundreds of communities have filed complaints with courts in both countries about either being forced off their land or pressured to sell it at cheap prices, the groups said. Many of those affected are impoverished or indigenous communities whose ownership of the land is often not recognized by local authorities.

'The situation is getting critical at the moment. The companies are expanding more and more,' said Kalyana Bujang, director of the Borneo Resources Institute of Malaysia, which has documented 200 court cases in the state of Sarawak alone. 'The communities are caught unaware. They don't know what to do, or where to go.'"

Crude palm oil closed at 2,740 Malaysian ringgits per tonne, or roughly $108.74/b.

11. RAND RELEASES REPORT SAYING THAT OIL CONSUMPTION, NOT IMPORTS, IS THE SECURITY THREAT OIL POSES THE US

Carola Hoyos at FT Energy Source reports that RAND has released a report which argues that dependence upon oil imports do not particularly threaten US security, but that the size of US consumption does. Energy Source reproduces a table of risks to US security linked to oil in the report:



I'm not quite sure of the logic of this, because, well, huge oil demand is what requires oil imports, and it is the fact that imports are difficult to provide security for in a volatile world that makes a dependence on a preponderance of your oil requirement a troubling security concern. Erwin Seba at Reuters writes that the report recommends the following steps:

"- Maintenance of well-functioning oil markets;

- Do not impose price controls or rationing during disruptions;

- A top-level review by government and business of economic benefits and environmental hazards of removing restrictions on drilling for new oil fields;

- Clear environmental and other rules for developing new oil fields and producing oil substitutes;

- Impose an excise tax on oil to increase incentives to drivers and manufacturers to economize on fuel use and soften growth in demand for oil."

Hoyos also notes:

"The think tank also has a message for oil producers: embargoes don’t work to advance your foreign policy goals.

And a message for US allies: Help pay the bill--12 to 15 per cent of the US’s sizable 2008 defense budget--for patrolling the Persian Gulf."

RAND's summary of the report can be found here.

12. US TRADE DEFICIT DOWN; NOW MOSTLY OIL IMPORTS AND GOODS FROM CHINA

Calculated Risk reports that the Census Bureau has released data showing that an at annual rate US imports and exports are down 27% and 17.4%, respectively. The blog quotes the Bureau:

"The ... total March exports of $123.6 billion and imports of $151.2 billion resulted in a goods and services deficit of $27.6 billion, up from $26.1 billion in February, revised. March exports were $3.0 billion less than February exports of $126.6 billion. March imports were $1.6 billion less than February imports of $152.8 billion."

Calculated Risk produces a graph plotting the trade deficit if you exclude the cost of petroleum imports and concludes that the US trade deficit is now nearly all oil and Chinese imports:



Calculated Risk is always worth looking at. Brad Setser at Follow the Money has four key take-aways from the latest trade data. One, though US imports from China are down 11%, they are down substantially less from there than from elsewhere.

"Until China’s imports (and US exports) turn up, China’s won’t be pulling the US up. Because the US imports far more than it exports from China, the bilateral deficit with China is down--but it isn’t down by as much as it would be if US exports to China hadn’t fallen by more than US imports from China."

Two, US imports from from South Korea are down 22.9% in the first quarter, but US exports to South Korea are down further, by 39%. Three, US imports from Japan, on the other hand, are down 41.8% in the first quarter while exports to Japan are "only" down 22.9%. And four, US imports from the Eurozone are down by 24.6% in the first quarter, slightly more than exports to the Eurozone have fallen, by 22.6%. (I surmise that this is to a large extent due to Bush's parting shot of levying a huge tariff on French cheeses, as French imports from the US are flat, while US imports from France are down 20%.)

13. SMALL BUSINESSES OPTIMISTIC

Sara Murray at Real Time Economics reports that The Index of Small Business Optimism climbed 5.8 points to 86.8 in April from March.

"'[T]he real bounce came in the expectations variables (the usual pattern, first optimism returns, then spending follows as confidence builds). The outlook for business conditions and expected real sales both posted large gains in the net percent of optimistic owners,' according to the survey."

Ms. Murray writes that the survey concludes that pent up demand is building quickly.

14. EIA REVISES FORECAST FOR INDUSTRIAL DEMAND FOR NATURAL GAS DOWNWARDS

Reg Curren at Bloomberg reports that the Energy Department has forecast that natural gas consumption by industrial users will decline by 8% in 2009. The forecast is worse than last month's, which had industrial sector demand for natural gas falling by as much as 7.4% in 2009--see Daily Sources 4/14 #14. In 2007, industrial demand accounted for about 34% of total US natural gas demand.