Column: China goes from engine to brake for crude oil, iron ore and copper
LAUNCESTON, Australia, Aug. 9 (Reuters) – China has gone from being an engine of global demand for major commodities to being a drag on growth, with July customs data confirming the trend of weakening imports of crude oil, iron ore and copper.
The exception to the trend was coal, but the surge in imports of polluting fuels in July was more due to China having to turn to the maritime market due to national policies that limited local production.
China, the world’s largest importer of crude oil, imported 41.24 million tonnes in July, equivalent to 9.71 million barrels per day (bpd), according to official customs data released on August 7.
This is down from June’s 9.76 million bpd, slightly above May’s 9.65 million bpd and below April’s 9.82 million bpd.
July was the fourth month in a row that crude oil imports fell below 10 million bpd, a far cry from most of 2020, when imports surged from May to November as refiners stocked up on low-bought crude. prices at the height of the crash caused by the coronavirus pandemic and a brief price war between major exporters Saudi Arabia and Russia.
Around that time, imports hit a record 12.94 million barrels per day in June of last year, but aside from a brief higher spike in March of this year, 2021 has been a story of declining purchases. of crude by China.
Crude imports for the first seven months of this year are 5.6% lower than for the same period in 2020.
This percentage decline could accelerate in the coming months as the strong imports in the second half of 2020 will provide a higher basis for comparison.
Imports of natural gas, from both pipelines and liquefied natural gas (LNG), also fell in July to 9.34 million tonnes, from 10.21 million tonnes in June.
However, this is more likely related to the scarcity of available cargo of spot LNG, as demand for super-refrigerated fuel increases in Asia to meet increasing electricity consumption during the summer cooling peak.
Among metals, iron ore imports fell for a fourth consecutive month, with 88.51 million tonnes of steel raw material arriving in July, down from 89.42 million in June and about 21% below the record 122 , 65 million as of July of last year.
Imports for the first seven months of the year are now 1.5% lower than the same period last year.
It could be argued that weather-related supply issues in Australia’s largest exporter and coronavirus-related production impacts in Brazil’s second-largest exporter are behind some of the low ore imports from iron, but that was largely a story in the first trimester.
Rather, it appears that official restrictions on steel production are finally having an impact on the demand for iron ore.
Given that China buys around 70% of global shipping volumes, it’s no surprise that the price of iron ore has fallen sharply in recent weeks, losing around 27% from a record high in May to close at 171.30 $ per tonne, based on raw material price estimates. Argus news agency.
Imports of copper also fell for a fourth consecutive month, with China buying 424,280 tonnes of raw metal, down from 428,437 tonnes in June and just over half of the record 762,211 tonnes in July last year. .
The release of 50,000 tonnes from Chinese state reserves and a loss of momentum in the main manufacturing indices are very likely to be the cause of the drop in industrial metal imports.
In addition, a change in import rules to allow purchases of higher quality scrap copper has also likely weighed on imports of refined copper, and since this is a structural change, it may continue to increase. have an impact in the months to come.
Coal was the exception to the general weakness of Chinese imports of major commodities, with shipments in July reaching a 7-month high of 30.18 million tonnes, up from 28.39 million in June and 26.1 million in July 2020.
However, for the first seven months, coal imports are still down 15% compared to the same period in 2020, reflecting that the strength is a recent phenomenon and is linked to a loss of domestic production amid the mine closures for safety inspections.
With China’s mines reopening and the peak in summer electricity demand not expected to last beyond August, the risk is that coal imports will moderate in the coming months.
Overall, July trade data shows that China’s raw material imports have moderated from robust levels associated with last year’s stimulus measures as part of Beijing’s efforts to stimulate the economy. following the pandemic.
It is likely that the remainder of 2021 will see imports approach levels seen in 2019, before the pandemic, rather than in the second half of 2020, when the recovery was in full swing.
This means that they will remain strong, but will not be the engine that drove commodity prices up sharply in the second half of last year and the first half of this year.
Chart: Overview of China’s trade and economy
The views expressed here are those of the author, columnist for Reuters.
Editing by Richard Pullin
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