Forget It, Jake, It's China(town) ...Trade, Steel, Farming and Gold

Happy Columbus day. U.S. Bond markets are closed today. Some stories from across the Pacific deserve your scrutiny ...

1. China Posts Strong Trade Figures, but Data Deserve Close Scrutiny

• Data point #1: China Exports (YoY) above expectations (11.8%) in September: Actual (15.3%).
• Data point #2: China Imports (YoY) registered at 7% above expectations (-2.7%) in September.

China’s exports through Hong Kong – a major trade gateway — should roughly track the nation’s total exports. In September, however, even as year-on-year exports to all regions rose a stronger-than-expected 15.3% year on year, those to Hong Kong grew by 34%. (This compared with a drop in exports to Hong Kong of 2.1%  in August.)

“Given that China’s exports to Hong Kong have surged again while the RMB is appreciating, it is natural to suspect the round-tripping trade is reviving,” said ANZ economist Li-Gang Liu, who added that trade developments between Hong Kong and China need to be closely monitored.

2. China Steel Exports Hit Record High in September - Steelmakers Boost Cheap Exports Amid China’s Slowdown

September net exports of steel products reached 7.2 million metric tons, rising 4.5% from the last high posted in May. Steel exports for the first nine months of the year are up 39% to 65.3 million tons. Net exports are exports less imports.

By absolute volume, exports reached 8.5 million tons, also a record. September shipments rose 73% from a year earlier.

Overcapacity continues to plague the Chinese steel industry. Domestic demand for steel is waning, which compounds the problem of excessive production capacity, said Applied Value analyst Jason Yang.

China’s crude steel production in the first eight months is up 2.6% at 550 million tons. Measured on a daily average basis, the country’s mills are still producing at record levels.

Five-year lows in prices of iron ore, the key raw material for steel, are also spurring Chinese mills to produce. September iron ore imports rose 14% from a year earlier to 85 million tons. As global miners open new lines of fresh supply, iron ore for delivery to the Chinese port of Tianjin reached $80 a ton last Friday, down 40% from the beginning of the year, which is the lowest level since July 2009.

3. Once a Symbol of Power, Farming Now an Economic Drag in China

Farms in China are too small to generate large profits, about 1.6 acres on average, compared with 400 acres in the United States. Yet it is difficult to consolidate these farms into larger, more efficient operations because Chinese farmers do not own their plots — they lease them from the government.

Privatizing farmland would allow market forces to create bigger farms. But that would be a political minefield for the Communist Party. It would also risk exacerbating inequality, by concentrating land ownership in the hands of a few while leaving many rural families without farms to fall back on if they hit hard times in the cities.

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In some parts of China, rents are even higher than in Yangling, topping $1,200 per acre. By contrast, the average acre of farmland in the United States rented for $136 in 2013.

4. Asian Market Hubs Move Into Gold

Three big financial hubs in Asia are separately launching trading in a gold contract, each backed with physical gold.

The Shanghai Gold Exchange was launched in September inside the city’s free-trade zone, offering yuan-denominated contracts backed by gold held in Shanghai. This week, Singapore will offer its own contract, and later this year, CME Group, which operates exchanges in Chicago and New York, plans to start a U.S. dollar-denominated contract in Hong Kong.

Holdings by gold-backed exchange-traded funds fell to 53.5 million ounces in October, the lowest level in five years, according to U.S-based ETF Securities.

In Asia, where the metal remains popular as a store of wealth, demand for gold jewelry, bars and coins is robust. The World Gold Council, an industry body, says demand in China rose to almost 1,300 tons in 2013, up 160% from five years ago, although it expects demand to be flat, at best, this year. In India, buying was 50% higher over the same period at 975 tons.

China is now the world’s largest producer and consumer of gold, and the biggest importer, as domestic demand has outstripped supply. India also is a major buyer and importer. Two-thirds of global gold purchases come from Asia, the World Gold Council says.