Saudi Arabia Bets Chemicals and Plastics Will Rebound After Covid

As Saudi Arabia battles to prop up oil and gas markets amidst the worst global economic downturn in decades, it’s facing renewed challenges to its mission of diversifying exports away from the traditional petroleum pillar.

Crown Prince Mohammed bin Salman has embarked on the most serious effort since the desert kingdom’s founding in 1932 to build an economy that can prosper beyond a finite fossil fuel resource. And while the global Covid-19 pandemic has dented the growth of that so-called Saudi Vision 2030 program, an analysis of trade statistics suggests the country has laid a foundation for a more sustainable economic future.

To be sure, there’s no way of minimizing just how badly the pandemic is damaging global trade. In the first quarter of 2020, Saudi Arabian non-petroleum exports shrank 13.6% year-on-year to $12.7 billion. “The kingdom has not faced such a crisis—neither healthwise nor financially—for decades,” Finance Minister Mohammed al-Jadaan said in a recent interview. And, in the last few years, Saudi Arabia has struggled to manage tense relationships with the U.S., Russia and other key trading partners.

At the same time, it’s persisted in efforts to integrate with fellow members of the G20 club of the world’s richest economies. An analysis of trade statistics suggests Saudi Arabia has built a more diversified export base. The kingdom’s non-petroleum exports increased to $57.1 billion in 2019 from $19 billion in 2005, the year it joined the World Trade Organization, according to Trade Data Monitor, the world’s top source of trade statistics.

As Prince Mohammed has slashed subsidies and tried to stimulate investment in new sectors like tourism, with mixed success, he’s also continued to push investment in petroleum-related industries, plowing tens of billions of dollars into new petrochemical projects.

In 2019, Saudi Arabia registered exports of over a billion dollars in 11 separate trade categories, topped by plastics ($18.8 billion) and organic chemicals ($12.2 billion), and including ships and boats ($2.3 billion), aluminum ($2.1 billion) and fertilizers ($1.1 billion).

Saudi Arabia Top Non-Petroleum Exports; Billions USD, 2005-2019; Plastics, Organic Chemicals, Inorganic Chemicals, Aluminum, Machinery; Source: General Authority for Statistics via Trade Data Monitor LLC; July 8, 2020

The challenge for Saudi officials has long been to use the oil and gas industry as a base to expand downstream into the rest of the industrial economy. Why not make plastics, chemicals and all the other petroleum-derived industries in the country itself, instead of shipping it to other countries for processing?

That’s why the country has aggressively recruited chemicals giants like Germany’s BASF, France’s SNF, Anglo-Dutch Shell and Japanese Mitsui & Co, and industrial firms like aluminum maker Alcoa, a joint venture partner on a massive complex that includes a bauxite mine, smelter and rolling mill.

While Saudi Arabia has struggled to create industries that rival petroleum’s in size, one thing it has going for it is its network of shipping customers all over the world. In 2019, it sent over a billion dollars of non-petroleum product to 12 different countries, led by China ($9.3 billion), UAE ($7.6 billion), India ($3.8 billion), Singapore ($3.5 billion), and Turkey ($2.1 billion). Its biggest market, China, bought $5.5 billion of organic chemicals and $3 billion of plastics in 2019, key ingredients needed to build what will eventually be the world’s biggest economy. In the first fourth months of 2020, a rare bright spot was the shipment of $248.5 million of precious metals and jewelry to Switzerland, a 110% increase, according to TDM data.

Not surprisingly, China is Saudi Arabia’s top source of imports, shipping $25.2 billion worth in 2019. That’s mostly consumer goods for Saudi’s 34 million inhabitants, including $7.4 billion of electronics, $1.4 billion of ships and boats, and $1.2 billion of automotive vehicles. The second biggest exporter of goods to Saudi Arabia is the U.S., with $15.4 billion worth in 2019, including a wide variety of goods from cars to pharmaceuticals.

Oil, it seems clear, isn’t going away any time soon. Saudi Arabia controls over 15% of the world’s proven petroleum reserves, and oil and gas make up half of its gross domestic product, and two-thirds of export revenues. Aramco, which controls Saudi production, turned a eye-popping profit of $88.2 billion in 2019.

Despite the curse of so much uncertainty, using the raw material you have in hand to make a diverse cluster of industrial goods the rest of the world needs – and will buy as the economy recovers – seems like a good bet.

Chinese Dominance of Clothing Trade Dented by Covid-19, Trade War

The Covid-19 pandemic has ravaged the global clothing industry. The question is how it will emerge when the world economy goes back to normal sometime this year or next. When will consumers be ready to shop for clothes with the same abandon as this past decade? And when they do, will they buy from the same retailers purchasing from the same supply chains? There are many unknows, but already, it seems certain that other Asian nations will chip away at Chinese dominance of the sector.

As the world’s big consumer markets put away their wallets, they are slashing imports of less-essential items, including new clothing. Big brick European and American retailers have been cancelling orders en masse as they shut shop. JC Penney, one of America’s biggest clothing retailers, even filed for bankruptcy. Online sellers are faring a bit better but are coping with slashes in demand as people have less money in their pockets to spend.

The US, the world’s biggest single buyer, cut imports of apparel 18.9%, to $21.7 billion in the first four months of 2020, according to Trade Data Monitor, the world’s premier source of trade statistics. That is happening pretty much everywhere. Japan reduced imports 8.1% to $8.3 billion.

The loss of appetite is damaging exporters. Shipments from virtually every significant apparel manufactured have declined sharply so far in 2020, according to TDM. In the first quarter of 2020, Chinese garment exports fell 21.1% to $21.3 billion. Turkey: down 7.4% to $3.7 billion. Indonesia: down 6.7% to 2 billion. A blood bath for a manufacturing sector that employs millions and underpins the fledgling prosperity of many developing countries.

The pain is potentially massive and widespread. As factories closed and retailers cancelled or suspended contracts this year because of the pandemic, often invoking force majeure, the top Asian producers, including China, Bangladesh and Pakistan, published a statement asking importers to “carefully consider all potential impacts on workers, small businesses in the supply chain when taking significant purchasing decisions” and to “honour the terms of purchasing contracts, fulfil obligations therein, and not re-negotiate price or payment terms.”

China exports roughly one-third of all the apparel exports in the world. Since the 1980s, apparel exports have been the pillar of the country’s global export apparatus. By 2000, the year before China joined the World Trade Organization, it was already the world’s top exporter of garments, with $32.3 billion shipped all over the world. Its WTO membership and joining the WTO’s special tariff agreement on textiles in 2005 opened the floodgates for Chinese exports to really boom, even as it expanded its economy into the further reaches of heavy industry and advanced technology. In 2019, it exported a whopping $138 billion worth, far ahead of second-place Germany at $23.8 billion.

Its thousands of factories are not suddenly going to close, because of Covid-19 or any other reason, but they are almost certain to see their edge whittled away in favour of other Asian competitors. Bangladesh, for example, in 2019 exported $34.7 billion worth of apparel, up from $33.3 billion in 2018 and $30.3 billion in 2017. Vietnam shipped $31.4 billion worth, up from $28.8 billion in 2018 and $25.6 billion in 2017, according to TDM.

The Covid-19 pandemic comes on top of several problems for China. Wages in the country are increasing, boosting the incentive to switch production to Bangladesh, Vietnam, Cambodia, and India. And the trade war with the US has motivated retailers to move more sources of supply to those countries to minimize risk.

US Top Import Sources, Apparel (HS 61, 62); Billions USD; Jan-Apr 2019, Jan-Apr 2020; China, Vietnam, Bangladesh, Indonesia, India; Source: US Census Bureau via Trade Data Monitor LLC; June 15, 2020

In the first four months of 2020, the U.S. reduced imports of apparel from China, its biggest source, by 43.4% to $4.19 billion. Shipments from number two Vietnam fell only 1.4% to $4.15 billion. And imports from number three Bangladesh rose 1.9% to $2 billion.

That seems yet another example of how the Trump-era U.S.-China trade war is helping to permanently reshape global trade patterns. Covid-19, as it’s doing to so many parts of the global economy, is simply shaking things up even more.

Changing Trade Flows Fuel China’s Record Trade Surplus in May

The global Covid-19 pandemic is the global economy’s biggest speed bump this century. The International Monetary Fund has said it could shrink the world’s gross domestic product by 3%, and possibly more. Among those that have to adjust the most is China’s mammoth trading economy, the linchpin of global trade.

The long-term disruption still isn’t clear, but already, China is importing more commodities like oil and soybeans, losing exports of consumer items like phones and home appliances, and industrial goods like steel, aluminum and cars, and beefing up outgoing shipments of medical supplies to help fight the pandemic, according to an analysis of May exports and imports by Trade Data Monitor, the world’s premier source of trade statistics.

With so much in flux right now, including a dispute over Hong Kong, the U.S.-China trade war, and coping with the pandemic lockdown, businesses, governments and organizations are tracking data as closely as they can, especially trade statistics.

One trend that’s already clear: With uncertainty abounding, a scramble for key resources is afoot.

China has been ramping up imports of agricultural products. That’s partly because of an agreement with the U.S. to lower tariffs. But it’s also part of a broader trend as nations seek to ensure plentiful food supplies. Chinese meat imports rose 46.7% in May to $2.4 billion from $1.6 billion in May 2019, while soybean shipments increased 25.6% to $3.6 billion. Cereal imports rose 29.5% to $4.4 billion.

It’s also been importing more oil. Chinese crude petroleum imports increased to 48 million tons in May from 40.1 million tons in May 2019. However, a fall in oil prices caused imports by dollar amount to fall to $9.5 billion from $21.1 billion.

World Bank President David Malpass in a recent BBC interview called Covid-19 a “devasting blow” that would disrupt the livelihoods of “billions” and last at least a decade. Those billions include consumers and businesses from all seven continents who buy the iPhones, shoes, furniture, and thousands of other products made in China.

Chinese exports of mobile phones shrank 12% to 66.9 million units in May, from 76.1 million units in the same month the year before. With hundreds of millions of people losing or getting furlough from their jobs, spending on discretionary items is going to take years to recover.

There are some exceptions to the gloom. Exports of medical devices to help fight Covid-19 and related diseases, almost doubled, rising to $2.1 billion from $1.1 billion. And textile exports soared to $20.7 billion from $11.5 billion.

For all the damage Covid has done to consumer markets, it’s been even harsher on industrial goods. Around the world, the pandemic has forced the closure of iron ore mines, steel mills, and car factories from Detroit to Japan. In May, Chinese auto exports fell 14.5% to $1.2 billion, and steel shipments declined 25.7% to $3.7 billion.

China, Selected Exports; Billions USD; May 2019, May 2020; Garments and Clothing Accessories, Steel Products, Unwrought Aluminum and Aluminum Products, Motor Vehicles and Chassis, Ships; Source: China Customs Statistics via Trade Data Monitor LLC; June 8, 2020

To be sure, because of its internal market, sheer size, and other advantages, China is likely to hold on to its status as the world’s dominant manufacturing power. In addition, the Chinese currency, the Yuan, is getting weaker as investors seek safety in the dollar, which will further fuel Chinese exports.

In May, China exports declined 3.3%, while imports fell 16.7%, triggering a one-month trade surplus of $62.93 billion.

That was the highest monthly trade surplus in Chinese economic history.

A Shift in Trade as Consumer Spending Declines, China April 2020 Trade Data Shows

As the first country to suffer the impact of the coronavirus, China is leading the way in restarting its economy, and its performance offers some clues to what the U.S. and EU can expect for the rest of the year.

To some, China’s performance is a sign of resilience. Markets on Thursday rose to the announcement by China’s General Administration of Customs that exports in April had increased 3.5% compared to the same month a year ago.

However, the longer-term outlook is likely to be worse: Consumer spending is down across the globe. Imports in April by China, the world’s most important consumer market, declined 14.5% in April, and economists expect subsequent decreases in investment and spending over the rest of the year. China’s economy in the first quarter shrank 6.8%, its first contraction in decades.

At the same time, even under a pandemic lockdown, countries have to maintain essential baselines of economic activity, and humans still need to eat and heat their homes, and perhaps even stockpile raw materials and essential life supplies if necessary. Chinese imports of meat, pharmaceuticals, iron ore, crude oil, coal, natural gas and soybeans all increased.

And a closer look at the data suggests that the pandemic, which has killed over 250,000 people worldwide, has accentuated a permanent shift in the way the global economy operates, slashing Chinese exports to the West, and fueling increased trade with Asian countries, according to an analysis by Trade Data Monitor.

For decades, China has supplied the wealthy consumers of the U.S. and European Union with phones, computers, clothes and other essential durables. Now, as those blocs enter their worst recession since the 1930s, China is having to turn its sights to Asia.

Over the first four months of 2020, Chinese exports to its largest Asian trading partners, the ASEAN countries, increased 3.9% to $104.5 billion. At the same time, Chinese exports to the EU fell 6.6% to $101.5 billion, and shipments to the U.S. declined 15.9% to $99.1 billion.

As Asian economies emerge into prosperous consumer blocs, they may be able to sustain China’s manufacturing dynamo a while longer, explaining the overall 3.5% rise in exports. But it’s hard to avoid the conclusion that the pandemic will cause a sustained global reduction in consumer spending and demand, with effects sure to ripple throughout the global economy.

China, Selected Exports; Billions USD; Jan-Apr 2019, Jan-Apr 2020; Source: China Customs Statistics via Trade Data Monitor LLC; May 7, 2020; Garments and Clothing Accessories, Mobile phones, Plastic Products, Steel Products, Furniture and Parts, Shoes and boots, footwear, Bags and Containers, Toys, Motor Vehicles and Chassis, Medical devices

Overall, Chinese exports of clothing, plastics, furniture, shoes, toys, luggage, steel and cars all declined. Exports of the “mobile phone” category, for example, fell 10.5% in the first four months of 2020 to $30.8 billion. One outlier: masks. Exports of medical clothing and equipment surged.

In the first four months of 2020, total Chinese trade, imports and exports, fell 7.5% year-on-year to $1.3 trillion. Exports declined 9% to $678.3 billion, and imports fell 5.9% to $620.1 billion.

China Tech Sector Focuses on Asia Amid Pandemic

The Covid-19 pandemic is accelerating a “decoupling” between U.S. and Chinese high-tech sectors and supply chains, according to an analysis by Trade Data Monitor.

What March trade data suggests is that companies from the two rival economic superpowers are shipping more regionally, a sign they’re heading toward cutting countries out of their supply chains and producing more locally. That would reverse a process of tighter global integration and the building of long, intricate multiple-country just-in-time supply chains that began when China joined the World Trade Organization in 2001 just as the consumer tech boom exploded.

Chinese high-tech exports to the U.S., its biggest market, fell 21.7% in March, to $7.5 billion from $9.5 billion in the same month a year before, and high-tech shipments to the UK declined 29.9% to $917.6 million, year-on-year, according to Trade Data Monitor, the world’s premier source of trade statistics.

China High-Tech Exports to Top Partners (select commodities from HS 28, 29, 30, 32, 38, 39, 84, 85, 87, 88, 90, 93, 96); Billions USD; March 2018, 2019, 2020; 12, 10, 8, 6, 4, 2 Billions USD; United States, Japan, South Korea, Vietnam, Netherlands, Taiwan, Germany, Singapore; 2018, 2019, 2020; Source: China Customs Statistics via Trade Data Monitor LLC; May 2020

Meanwhile, shipments to Vietnam increased 26.7% to $2.8 billion, and those to Singapore rose 25.4% to $1.5 billion, suggesting that Chinese tech companies are shifting inventory and parts to countries where they can stock inventory, assemble parts for manufacture, and sell finished products to consumers.

Overall in March, Chinese exports of high-tech goods declined 8.1% to $54.5 billion from $59.3 billion the same month a year ago. The regional disparity, between US/EU and the rest of the world, suggests that China will seek to replace lost markets in the West by building on its dominance in Asia and Latin America.

Accurate and up-to-date data is crucial to understanding what’s happening to global trade as it undergoes historic shifts during the pandemic.

This year, there is no bigger factor driving change in the global economy than the coronavirus pandemic. U.S. GDP is expected to drop 38% in the first quarter, according to Morgan Stanley. Deutsche Bank is forecasting an 31.7% contraction in Chinese gross domestic product in the first quarter.

But there is a silver lining in the tech industry. While we’re all stuck at home, we’re watching Netflix, ordering pizza and sushi on Grubhub, and buying toilet paper on Amazon. Yes, demand is sure to wane as people lose income, but the tech industry is sure to maintain pockets of strength: Simply, it’s become essential to human life as we know it.

But how high-tech goods are made is due for a change.

According to TDM data, China still dominates long-term high-tech trade trends. In 2019, China’s total high-tech exports slipped 2.2% to $716.7 billion. The European Union was in second place, at $433.5 billion (up 5.6%), and the U.S. fourth, at $267.6 billion (up 0.6%).

Top High-Tech Exporters (select commodities from HS 28, 29, 30, 32, 38, 39, 84, 85, 87, 88, 90, 93, 96); Billions USD; 2014-2019; 800, 700, 600, 500, 400, 300, 200, 100 Billions USD; China, EU 28 External Trade, Hong Kong, United States, Taiwan, South Korea; 2014, 2015, 2016, 2017, 2018, 2019; Source: Trade Data Monitor LLC; May 2020

Now, as the pandemic follows a trade rift between Washington and Beijing, companies will want to insulate themselves from political and supply chain risk. In March, 44% of 25 large U.S. companies surveyed said decoupling would be impossible, down from 66% in October, according to a survey by China-based chambers of commerce cited in the Wall Street Journal.

Already, according to more detailed trade data, the EU and U.S. form a tightly woven supply chain. In 2019, the EU imported $225.3 billion of high-tech goods from the U.S., second only to China. Of that $23.1 billion was goods meant for processing and re-export. By comparison, the EU imported $304.2 billion of high-tech goods from China, of which only $3.6 billion worth was meant for processing.

Although measures of service trade are difficult to assess, service trade usually follows goods trade, so the two are closely related. For example, when a manufacturer imports parts to make a computer or phone, it must also contract the expertise to assemble them as a finished good.

One compelling feature of TDM’s database is its historical breadth. Consider this: In 2000, the U.S. was the world’s number one tech exporter, shipping out $142.2 billion. China was in fourth place at $29 billion. By 2010, the iPhone revolution had propelled China to top in the world, with $425 billion of exports.

Now, as the coronavirus pandemic changes the shape of the world’s economies and supply chains once again, trade data is there to tell the story of the next big historical shift.