This analysis from Capital Economics via ftalpaville suggests that the Chinese trade surplus should increase as demand in the rest of the world remains decent and commodity imports fall as the property sector busts.
While domestic demand should falter and the total value of imports should fall, I think that would be more a function of prices weakening than volumes.
For example, the obvious area of import weakness from a crashing property market would be iron ore as steel production halts. While we have seen a drop in apparent consumption of steel in China and falling iron ore prices, Chinese imports have been very big in the YTD rising 20%YoY.
Further weakness in steel consumption and rising inventories would certainly see Chinese consumers push back on supply. But the adjustment is likely to come via prices rather than via volumes. Seaborne producers are much more likely to push iron ore into China when prices are low than domestic Chinese producers given they are much more competitive on a cash cost basis.
Copper imports have also been stronger in the YTD than 2013, although refined and semis imports have been on part with 2012.
Indeed, contrary to the doom and gloom signals from elsewhere, demand for physical copper has actually been pretty good in China, with premiums for delivery bouncing and the backwardation in spreads widening a little in the last week or so (see this post).
Its also interesting that Chinese imports of copper concentrates has been very strong in the early stages of the year, rising over 20%. While there has been some disruption to concentrate availability from Indonesia in particularly, growth from elsewhere has helped offset this.
Again, it seems more likely at this stage that any weakness in Chinese demand will see prices adjust rather than volumes of imports.
One commodity where a different kind of adjustment has already been occurring is coal. Total Chinese coal imports are now tracking below 2013 levels, although met coal has been a lot weaker than thermal coal.
Initially weakness in demand for different coal types saw continued strength in Chinese imports, with prices moving lower. But it now appears to have gotten to a point where prices are so low that supply has tried to find an alternative home or has disappeared from the market altogether (US coking coal in particular).
So while supply in China has finally shifted a little lower, prices did have to fall to levels much much lower than previously envisaged.
So if met/thermal coal prove to be a good guide for copper and iron ore, the adjustment in prices will happen well before the adjustment in volumes, with the price adjustment tending to be more severe than expected.
This is important for the composition of growth in commodity producing countries. While export volumes will probably stay quite healthy, the impact to the terms of trade will be much more severe.
