MNI ANALYSIS: Trade Wars Could See Front-Load Of China Imports

--Both China Imports and Exports Could Be Booked Early To Beat Tariff Impact

     BEIJING (MNI) - Investors need to keep a close look out for the possibility

that both China's imports and exports fall sharply in the second half of the

year, as trade war uncertainties will push companies to get as much of their

business done in the next few months.

     A delegation of U.S. trade officials, led by Treasury Secretary Steven

Mnuchin, will hold trade negotiations with China officials led by the Vice

Premier Liu He on Thursday and Friday. However, with no certainty trade tensions

can be eased quickly, their could be a near-term impact on both imports and

exports.

     The official manufacturing PMI data, released Monday, said the new export

order index was 43.9 for small enterprises in April while their new import order

index was 53.0. This shows small companies continuing to increase their imports

of raw materials, despite contracting export orders.

     --RARE OCCURRENCE  

     It is not uncommon for the new import orders to outpace new export orders

for small enterprises. However, it is unusual to see such a disparity between

new import and export orders.

     Only twice before -- Nov 2013 and Feb 2017 -- that the spread has been

higher than the 9.1% reported this week. But in Feb 2017, the inventories index

was also low, suggesting the spread was driven by companies' demands to

replenish inventories (the Nov 2013 inventories index was not disclosed). 

     However, this time around, the inventories index was moderate at 49.5%,

which, therefore, cannot provide a satisfactory explanation for the wide spread.

     A more plausible explanation is that smaller companies have been importing

more to save future costs, fearing a trade wars will increase tariffs and import

costs. They would also aim to export as earlier to avoid potential trade

sanctions, also requiring more inventories to be imported.

     --BALTIC DRY RALLY

     In April, the Baltic Exchange Dry Index fell from 1055 on Mar 29 to 948 on

Apr 6, before rebounding to 1341 on Apr 30, which is the second largest April

gain in ten years. The move higher cannot be explained simply by fundamental and

seasonal factors, with trade uncertainties helping to stimulate trade a possible

factor causing the BDI to rise.

     As any trade sanctions happens, they likely take effect in June and

investors need to be aware of possible impacts on trade in the second half of

the year.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$A$$$,M$Q$$$]