China's March commodities imports ease; stock levels a worry

SHANGHAI Tue Apr 10, 2012 8:08am EDT

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SHANGHAI (Reuters) - China's imports of major commodities fell in March from a month ago, but defied expectations of large corrections to hover near recent highs, as companies built stocks in hopes the world's second-largest economy would pick up in the second quarter.

Economic data released so far offers further proof that China, a major driver of global commodities prices, is at no risk of a hard landing and its appetite for raw materials will continue to grow, although at a slower pace.

China's March imports of crude oil came off the previous month's record to 5.55 million barrels per day (bpd), which was still the third highest ever, as refiners in the world's second largest consumer rebuilt stocks.

Copper imports fell 4.6 percent on the month to 509,468 tons, while iron ore shipments were at 69.30 million tons, down just 3 percent from the 13-month high recorded in February.

But analysts warned that stockpiles of copper and iron ore have already risen to lofty levels after months of feverish imports and China's appetite could ebb in the second quarter.

"The import numbers for most commodities are stronger than expected, which is a little surprising because anecdotal evidence tells us that actual demand continues to be pretty weak," said Andrew Driscoll, a commodities analyst at brokerage CLSA Asia-Pacific.

Domestic copper demand has stayed lukewarm after January's Lunar New Year holiday, disappointing importers who had expected consumption to rise between late March and May - a period that typically sees a pick up in copper products manufacturing.

But a global economic slowdown has cut Chinese exports, while Beijing's clampdown on the domestic property sector, a major copper user, has capped the seasonal demand uptick.

"Our base case is that there will be an incremental easing in housing policy this quarter, which will help commodities consumption in the second half. But if that uptick doesn't happen, the high stocks will be a big concern," Driscoll said.

China returned to an export-led trade surplus of $5.35 billion in March, with weaker-than-expected imports suggesting soggy first-quarter domestic demand.

But the stronger-than-expected exports suggest a rebound in the global economy is lifting overseas orders just in time to offset the slowdown in domestic consumption, reinforcing analysts' view that China's trade-sensitive economy is set for a soft landing in 2012.

March data provides the first hard economic numbers of the year not distorted by the Lunar New Year holiday, which skewed comparisons for January this year and with February last year.

"Overall, the economy isn't doing too bad and there is certainly no sign of an abrupt downturn," said Nicholas Zhu, head of macro-commodity research for China at ANZ Bank.


For China's commodities demand to stage a convincing rebound, Beijing must further loosen monetary policy and more crucially, relax a year-long clampdown on the property sector - a major driver of commodities consumption that made up 13 percent of gross domestic product in 2011.

Traders and analysts reckon the government cannot afford to keep much longer property curbs that were choking off a crucial source of funds to local governments already swamped by loans.

The bet has spurred steelmakers to ramp up production, boosting daily output in the world's top steel producer and consumer to 1.92 million tonnes from March 11 to 20.

Some international suppliers had also moved copper from the international market to Shanghai to await a better price, traders said.

Total copper imports for the quarter have surged 50 percent to 1.36 million tonnes, while iron ore climbed 6 percent on the year to 187.6 million.

Separately, China's soybean data was a bright spark, with March imports jumping 26 percent from a month ago to a year-high of 4.83 million tonnes, fed by rising demand from the domestic animal feed industry.

(Editing by Clarence Fernandez)

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