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China Data May Pressure Metals Prices

Lower imports from China, a decline in the housing market, rising metal inventories and higher dependence on Europe for exports could lead to excess supply.

NEW YORK (TheStreet) -- The future of copper and aluminum prices doesn't look too encouraging owing to the trade data released by China on Thursday. The latest export statistics do not reflect the growing crisis in Europe. Once the demand from Europe falls, we reckon that there will be excess supply in the market putting a lot of pressure on metal prices.

Copper imports in May fell 9% month on month and 6% year over year to 396,712 tonnes, indicating lower consumption demand from China. Although inventories maintained by the Shanghai Futures Exchange declined 17% to 157,698 tonnes from 189,441 tonnes in April, they continue to remain at record highs, a five-fold increase from the same period a year ago.

This trend may continue as property sales fell by 70% during May and property prices appreciated 12.4%, thereby signaling the possibility of even more tightening measures from the Chinese government in the future.

"Imports are moderating but still considered high," Wen Jinghai, an analyst at Bohai Futures Co told

Bloomberg

. "This will add to the oversupply and may pressure prices lower, especially now that we're in the weak-demand period."

China's aluminum imports on the other hand inched up 1% to 94,487 tonnes from 93,340 tonnes in April. Imports fell 72% when compared to the same period last year. There is a lot of oversupply in the market as smelters in the Middle East have begun production and China has turned into a net exporter of the metal.

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Primary aluminum exports in May surged 52% to 73,895 tonnes from 48,546 tonnes in the previous month. On the steel front, imports declined 9% to 1.36 million tonnes from 1.50 million tonnes in April. However, China is a net exporter of steel. Exports increased 14.6% to 4.94 million tonnes from 4.31 million tonnes.

So far this year, China has exported 17.96 million tonnes of steel compared with 7.90 million tonnes during the first five months of 2009.

In total, China's exports of all products in May stood at $131.76 billion, a 9.9% increase over the previous month. Imports declined 5.4% to $118.24 billion from $112.23 billion. Subsequently, the trade balance stood at a whopping $19.53 billion, up 50% year over year. Furthermore, the Purchasing Manager's Index, an indicator of manufacturing activity, fell to 52.7 in May from 55.2 in April.

Shipments to the European Union soared 50% from a year earlier, compared with 29% in April, while exports to the U.S. increased 44%, up from 19% in April. It is quite clear from the data that metal demand and consumption in China is falling, thereby forcing China to up its exports in order to maintain a trade surplus and ensure there is no oversupply.

However, analysts reckon that this growth in exports may be short-lived due to rising eurozone issues and if the Sino-U.S. discussions with regards to China allowing the yuan to appreciate against the dollar materialize.

"Today's data may be the good news before the bad news as the European debt crisis curbs the region's demand and property-market corrections drag on investment," CICC's Xing Ziqiang, a Beijing-based economist told

Bloomberg

. "Exports may decelerate rapidly later this year," Ziqiang added.