High Trade Flow – Demand or Inventory? The Latter is Not Good for China

C-MACC Sunday Thematic and Weekly Recap

High Trade Flow – Demand or Inventory? The Latter is Not Good for China

• With weak European consumer spending and weakening spending in the US, where are all the Chinese exports going? Some into inventory as a hedge against higher tariffs – how does this unwind and what is the trigger?
• While we have been focused on recent freight rate increases, we have spent less time on physical volumes, but all indications would suggest that shipments are higher and by more than spending trends would support.
• If you think pricing for Chinese goods could rise by another 25%, the cost of carrying more inventory is low by comparison, but once the tariffs rise (or don’t) the inventory will come down and apparent demand will fall.
• Freight rates would fall, but China will be more impacted, as demand falls from one enhanced by an inventory build to one reduced by the inventory fall: not good for a country struggling with a manufacturing surplus.
• Otherwise, we look at the gross discrepancy between the haves and have-nots in basic chemicals, again, why the heat may come off critical minerals (though it should not), hydrogen transport, and recycling vs fuel.

Exhibit 1: Note that the July data in Exhibit 2 suggests that the forecast below was too conservative.

Source: NRF

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