China’s steady commodity imports are remarkable in context

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China’s imports of major commodities presented a “steady-as-she-goes” picture in January, which doesn’t sound that exciting but should go some way to hosing down some of the more alarmist fears over the state of the world’s second-biggest economy.

In a month where commodity prices were rattled by ongoing global growth fears, and equity markets also stumbled, it has to be reassuring to some extent that the physical flow of commodities to China looked more or less normal.

Worries flared over China’s currency valuation, credit risks and capital outflows, contributing to the MSCI World Index dropping as much as 10 percent in January, while Brent crude oil plunged as much as 25 percent at one point during the month.

China’s crude oil imports did drop to 6.29 million barrels per day in January, a decline of 20 percent from December and 4.6 percent on the same month in 2015.

But seen in the context of December being the record high for crude imports and the Chinese New Year holidays being 11 days earlier this year than in 2015, it becomes clear that the crude imports are within the realms of reasonable variation.

It’s also worth noting that exports of refined fuels fell in January to 679,000 bpd from December’s record 975,500 bpd, meaning less crude was needed for oil product exports.

Crude imports in February are expected to be around 6.63 million bpd, according to assessments by Thomson Reuters Oil Research and Forecasts.

If the February forecast is accurate, it would mean a fairly solid start to the year for Chinese crude demand, continuing the pattern seen last year of rising oil demand for strategic storage and increasing gasoline consumption on the back of higher vehicle sales.

IRON ORE, COPPER

Iron ore imports were weaker in January from the prior month, dropping 14.6 percent to 82.19 million tonnes.

However, as for crude oil, December 2015 had been a record month for iron ore imports, and January’s figure was still 4.6 percent above that for the same month a year earlier.

There was most likely an element of stockbuilding ahead of the early February Chinese New Year holidays, as witnessed by a gain of some 2 million tonnes in port inventories over the month.

But it also seems clear that despite the much-publicised woes of China’s steel sector, which is battling both excess capacity and weak demand, iron ore imports are very far from collapsing.

It would be surprising if they managed to improve on last year’s record 952.8 million tonnes, given expectations of lower steel output in China in 2016.

But overall, the main problem with iron ore isn’t demand, it’s the massive amount of oversupply caused by the overly optimistic forecasts made several years ago by the major miners, which led them to ramp up production to levels sufficient to swamp the market.

Copper continued the January pattern of a drop in imports from elevated levels in December, but still solid when compared with the same month in 2015.

January’s imports were 437,000 tonnes, up 5.3 percent on the same month a year ago, but down 17 percent from December.

In recent months, copper imports have been boosted by buying for inventories, given the industrial metal’s low global price.

While China’s commodity imports for January always come with the caveat of the potential impact of the timing of the Lunar new year holiday, there seems little in the data to cause consternation.

Imports held up well, with the exception of coal, which saw a 9.2 percent drop from the same month a year earlier, although even this may be viewed somewhat positively, as it is a slower pace of decline given the 30 percent plunge for 2015 as a whole.

January’s commodity imports were generally unremarkable, which is remarkable given the turmoil that was taking place in financial markets at the time.

Source: Reuters

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