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Message: BMO's take on China's October commodity imports

"Preliminary Chinese commodity imports slumped in October after an abnormally strong September, with copper shipments dropping nearly 26% on the month to the lowest level for a year, iron ore falling 13% and oil plunging a large 30%. In sharp contrast, unwrought aluminum shipments into China increased a healthy 7.5%. Taking seasonal factors into account, copper imports were down some 19%, iron ore was actually up 12% and oil was down by about 29%. Seasonally adjusted aluminum imports were up a strong 21%. On the surface, the almost across the board sharp commodity import declines suggest that there is a fundamental weakening of the Chinese appetite for raw materials in October. Indeed, that is the opinion expressed by some observers in response to the October commodity trade data, likely meaning a bit of a correction in the short term. However, the details reveal a much more mixed and complex picture, with commodity-specific supply/demand fundamentals and seasonality (as demonstrated by the seasonally adjusted imports statistics) playing a very large part in determining October trade numbers. As such, the October Chinese commodity import data can''t just yet be interpreted as representing a fundamental macro-based reduction in China''s appetite for foreign commodities, especially since September was somewhat stronger than expected. The combination of quantitative easing, western world currency concerns and continued global growth all should serve as support for Chinese commodity import levels into 2011. We believe this will likely mean that commodity prices from copper to iron ore will remain very well bid."

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