Investor appetite for the natural resources sector took another whack to the gut earlier today as a steady stream of disappointing Chinese economic data continued.
Latest trade numbers showed exports from the Asian manufacturing powerhouse slump for the third consecutive month in May, down 2.5% from the corresponding period in 2014. Although this was an improvement from the 6.4% slide recorded in April, the data undermined hopes of any substantial recovery in finished goods orders yet again.
When you throw in May’s disastrous import numbers into the mix — shipments into China collapsed by a colossal 17.6% last month amid toiling domestic consumption — now is a sticky time to be involved in the raw materials business.
Crude demand tanks
Indeed, fossil fuel leviathans BP (LSE: BP) (NYSE: BP.US) and Vedanta Resources (LSE: VED) would have been left shaking their heads after black gold imports fell through the floor last month.
China is the world’s second largest crude importer behind the US, so news that crude purchases slid 11% in May, to 23.24 million tonnes, is likely to weigh further on the sector’s earnings profile. Sales to the country have long provided critical support to the industry, and the Brent benchmark retreated back below $63 per barrel following the overnight release.
And today’s news follows OPEC’s latest refusal on Friday to curtail production despite the growing market surplus. And with latest Baker-Hughes data showing another slowdown in the number of rigs being switched off — 642 units were taken offline in the week to June 5, a marginal improvement from 646 withdrawals in the prior week — supply looks set to remain abundant.
Red metal demand rattles lower
But the oil sector was not alone in suffering a demand nosedive in May, and copper sales to China sunk 14.7% from the same month last year to 360,000 tonnes. The nation is by far the world’s largest consumer of the red metal, whose widescale use across a wide variety of industrial goods makes it a terrific barometer for broader conditions in the economy.
Such news clearly bodes ill for specialist copper miners such as Chile-based Antofagasta (LSE: ANTO), while diversified plays like Glencore (LSE: GLEN) would also be concerned at what declining demand for the bellwether material means for the wider metals suite.
With supply/demand imbalances worsening across all major commodity markets, as major producers remain committed to hiking production and global consumption drags along at subdued levels, I believe that the earnings outlook looks set to remain murky across the energy and mining industries.