Panjiva Discussions – China Trade Opportunities Webinar and Q&A — Panjiva
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Panjiva Discussions – China Trade Opportunities Webinar and Q&A

China 1793 Cons. Discr. - Autos 676 Energy - Renewables 100 Materials - Construction 73 Materials - Metals/Mining 496 Metals - Steel 369 Panjiva Discussions 8 Theme - Rates 144 U.S. 3362

We held a Panjiva Discussions webinar on November 15 to discuss the opportunities presented by China’s $4 trillion trade economy. A full report covering the key points can be downloaded here, but you can follow the webinar recording below:

Here are our responses to the questions asked:

Q: Solar panels have been a big export business for China, how has that been going?

The short answer is: not well. Chinese exports had already dropped by 87% from the peaks in the past quarter as a result of earlier tariff cases, Panjiva data shows. That has led Chinese manufacturers to shift manufacturing capacity and partner with operators in other countries. One example was Trina Solar’s tie-up with Vina Solar of Vietnam.

There’s also been an increase in shipments from other countries including those from Hanwha-Q Cells’ factories in Malaysia and South Korea. That geographic diversification has led, in turn, to the launch of the section 201 “safeguarding” review of the solar power sector. That could lead President Trump to impose tariffs against all suppliers.

IF AT FIRST YOU DON’T SUCCEED, GO SOMEWHERE ELSE

Chart U.S. imports of solar cells and panels by shipper. Source: Panjiva

Q: The U.S. has put tariffs in place against many Chinese exports, how have buyers responded to that?

There are two ways to respond to the removal of a supplier. One is to find alternatives, the other is to raise the price offered to crowd others out. An instructional example is Canadian exports of softwood lumber to the U.S. As outlined in Panjiva research of November 3, exports from Germany and Sweden have provided a partial offset. Another is that market lumber prices have doubled compared their 2015 lows to reach a new high in October.

RAPID GROWTH

Chart compares market lumber prices (left hand axis) to average import value per ton. Calculations include CME data. Source: Panjiva

Q: Have tighter Chinese regulations on the environment resulted in lower availability of raw materials such as plastics?

The recent National Congress was accompanied by restrictions on manufacturing in areas around major cities to improve air quality. That’s been part of a broader, long term push to improve air quality and cut carbon emissions. However, there is a bigger impact on production resulting from the reform of state owned enterprises. That is designed to rein in earlier over investment, and will likely restrict production in metals and related products. President Xi’s recent speech has been matched by an extension in the list of companies due for reform, making it vital to keep track of whether supply chain partners are part of the list. Panjiva data shows Chinese exports of steel fell 12.8% on a year earlier in the third quarter.

STEEL EXPORTS RUSTING

Chart segments Chinese exports of steel (HS 72) by destination market. Source: Panjiva

Q: You mentioned rail freight is doing well, but how is the development Chinese being affected by the dynamics of the shipping market?

Container rates have improved over the past year as the industry has shown more discipline following the financial failure of Hanjin Shipping. A recent downturn, however, showed the effect that perceptions of overcapacity can have. Looking into late next year several shippers have announced significant investment plans, which may raise concerns of discipline failing. On the tanker side most companies don’t expect a recovery until late next year. In both instances government policy may come to bear, with significant support in both China and South Korea for shipyards.

TANKERS PLUMB THE DEPTHS

Chart shipping rates by mode. Calculations based on data from Bloomberg, Lloyds’ List Intelligence and Shanghai Shipping Exchange data. Source: Panjiva

Q: Do this week’s NAFTA talks mean anything for Chinese trade?

A: This week’s talks specifically probably will not. There’s a determination to sort out minor areas of agreement, rather than tackle the bigger issues. Those include rules of origin changes, which could have a significant impact on Chinese exports to the U.S. Growth areas, such as auto-parts, may be limited if increased content requirements cut the eligibility of certain suppliers to be NAFTA-tariff compliant. The U.S. accounted for 33.2% of Chinese auto-parts exports in the past three years.

There are also likely to be conflicts between NAFTA rules and those in other trade deals – for example Canada and Mexico’s dispute settlement in NAFTA vs. CPTPP. Changing trade regulations are an issue for everyone, not just companies working with Chinese buyers or suppliers.

DRIVING ON

Chart segments Chinese auto-parts exports (HS 8708) by destination market. Source: Panjiva

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