China's appetite for Australian dairy imports could decrease as its economy strengthens.
Rabobank Shanghai-based senior dairy analyst Sandy Chen said the Chinese dairy market would maintain some weakness in Australian dairy commodity prices in the coming months.
“Chinese milk production has remained firm and food service consumption soft, Chinese stocks are mounting, and the lower import demand will be a key factor for Australian exporters,” Mr Chen said.
“The next six Global Dairy Trade events will be critical in setting the commodity and farm-gate prices for this region.”
While China’s quarter one gross domestic product was down six per cent year-on-year, quarter two figures rebounded into positive territory, up three per cent year-on-year.
However, consumer demand has remained slow, with lower retail and food service sales.
Mr Chen said this suggested China's GDP was driven by the industrial sector and investments, rather than consumer spending.
Chinese dairy processing volumes gradually returned to positive growth since quarter two but are still down by about 2.5 per cent year-on-year.
Liquid milk imports into China year-on-year were relatively flat — down slightly at two to three per cent year-on-year during the first half of 2020.
Mr Chen said this result was “surprisingly positive given the market circumstances".
Chinese milk powder imports were also down, with the incoming June total for skim-milk powder and whole-milk powder declining seven per cent year-on-year.
“We understand that in March the government directed Chinese companies to increase their coverage of essential materials for the infant milk formula sector, particularly items China has to rely on imports for,” Mr Chen said.
He said geopolitical uncertainty, coupled with the early supply chain impacts of COVID-19, had “very likely” prompted dairy processing companies to shift their inventory model to ensure a higher level of stock.