China stimulus, jobs worry may boost some commodity exports: Russell

China's efforts to re-energise its economy through interest rate cuts are probably not enough to give much of a boost to commodity import demand, but oddly enough may act to boost some commodity exports.

The People's Bank of China cut interest rates for the third time in six months on May 10 in the wake of weaker-than-expected trade and inflation numbers.

It's no secret that both Chinese steel and aluminium producers have been struggling to stay in the black in recent years, given overcapacity and slower economic growth.

Additionally they are confronting pollution issues and government policies that are encouraging a move toward a more consumer-driven economy and less reliance on export-orientated heavy manufacturing.

Nonetheless, for now these industries remain vital employers of large numbers of workers, and in the current economic environment, it would be hard to see them idling capacity.

This means that the recent trend of rising exports of steel and aluminium products is likely to continue.

Chinese exports of steel and aluminium can only happen if they are price competitive, although this is more of an issue for aluminium.

But with Shanghai Futures Exchange benchmark aluminium contract only modestly higher for the year, and the London equivalent rising, especially in recent weeks, the competitiveness of Chinese production will be improving.

There are other factors to consider. On the negative side for Chinese exports of aluminium is the declining premium for physical delivery in the West, while on the positive side is the removal of export taxes on more aluminium products.

Overall, the trend is likely to be that Chinese steel and aluminium producers will be encouraged to keep output high, and may try to boost exports as a way to sell surplus output.

High operating rates may also boost imports of raw material such as iron ore and bauxite, but given the emphasis on preserving jobs, it's also likely that domestic mining, particularly of iron ore, will be encouraged, even if it's loss-making.

Looking further afield, it's possible that exports of refined oil products may also rise in coming months.

While refineries aren't nearly as significant employers as steel mills and aluminium smelters, it's possible that China's oil companies will also be encouraged to operate at high levels as part of efforts to stimulate the economy.