China’s exports soar, but demand slowdown predicted in 2021

Year-on-year expansion of more than 20% in November fuelled by growth in trade to the EU and the US, up 30% and 45%, respectively. But analysts expect more-normal patterns next year.

China’s exports continued to surge in November putting even more pressure on freight markets. However, analysts expect demand to start slowing next year as consumption habits revert to more normal patterns.

China reported 21.1% export growth in US dollar terms last month, the fastest recorded this year and up from 11.4% in October. Exports to the EU and the US drove the expansion, rising 25.9% and 45.5%, year on year, respectively.

China’s exports have gathered speed every month since June, with the country’s exporters benefitting from being the first economy to move out of COVID-19 pandemic lockdowns and the massive financial relief provided in Europe and the US to maintain consumption levels.

This “jointly contributed to a surge in exports of personal protective equipment (PPE) and work-from-home (WFH) electronics products, especially given seasonally higher demand prior to the Christmas season,” noted merchant bank Nomura.

However, analysts expect changes in consumer spending habits to temper demand for Chinese exports next year, helping relieve some pressure on ocean and air supply chains in the process.

“Many Covid-related purchases won’t happen again and we eventually expect a global rotation from goods to services consumption as vaccine availability reduces the need for social distancing,” said Louis Kuijs, head of Asia economics at Oxford Economics. “This will weigh on China’s export performance relative to global demand, after the market share gains in 2020”.

Nomura expects China’s export growth to remain elevated for “several months” but then predicts that the easing of Covid-19 lockdowns in Europe and the US will see demand soften.

“Behind the strong headline export growth numbers, we are seeing signs that PPE and WFH electronics product exports have lost some steam in recent months from peak levels in Q2 and Q3, respectively,” said the financial analyst firm.

Soaring exports from China have been a boon to container shipping lines which have been racking up large profits. But as reported by Lloyd’s Loading List, the continued peak in ocean container demand is causing severe port congestion in parts of Europe and the US and a chronic shortage of boxes globally.

It has also pushed spot freight rates to multi-year highs on major lanes out of Asia. Asia-Europe spot rates are up +77% since October (+141%, y-o-y) and Asia-Mediterranean rates have risen 60% (+130% y-o-y) over the same time period, according to Freightos.

The hikes to Europe have taken prices on both lanes to similar $4,000 per FEU levels that have been apparent on Asia-US West Coast services for the last three months.

Source: Lloyd´s