(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Andy Home
LONDON, July 22 One of the major themes in the
base metals markets so far this year has been the wide degree of
price divergence as individual metals increasingly respond to
specific supply-demand drivers.
This fragmentation is mirrored in the first-half import
picture from China, the world's largest user of industrial
metals and raw materials.
A couple of years ago it was customary to view China's
metals trade as a proxy for the health, or otherwise, of the
country's manufacturing economy.
These days such an exercise would be futile, given the
divergence of trends.
At one extreme sits copper. China remains structurally short
of the metal and its import appetite is still the single most
important determinant of the market's underlying dynamics,
although any read-through to manufacturing activity has long ago
been obscured by financing demand.
Lead is at the other end of the extreme. Chinese demand is
as important in this market as in any other industrial area, but
the country has been a consistent net exporter of refined lead
since the start of 2013.
The picture becomes even more confused at the raw materials
level, where supply, particularly stalled Indonesian supply, has
contributed to very different import patterns.
China's first-half trade figures provide a fractured
snapshot on the ways the country is interacting with global
Graphic on China's H1 2014 refined metal imports:
Graphic on China's H1 2014 raw materials imports:
China's refined copper imports decelerated over the course
of the second quarter, hitting a one-year low of 255,000 tonnes
in June itself. But they have still been much stronger than in
the same period of 2013, when the country was going through one
of its periodic destocks.
Net imports rose by 554,000 tonnes year-on-year to 1.74
million tonnes in the first six months of 2014.
Graphic on China's trade in refined copper:
The real significance of this increased pull from China is
the scarcity it has generated everywhere else, particularly on
the London Metal Exchange (LME), where registered copper stocks
are hovering near multi-year lows.
How much of China's imports has gone to meet manufacturing
demand and how much is still sitting in a bonded warehouse,
acting as collateral in the shadow credit markets, is a topic of
much debate among analysts.
The International Copper Study Group, for example, estimates
a 180,000-tonne build in bonded stocks in the first four months
of this year.
Collateral financing has become embedded within the copper
market, even after the Qingdao port scandal showed the risks
lurking in the darker shadows of the trade.
Qingdao, however, seems to have generated only a ripple
rather than a tsunami of bonded copper leaving the country for a
Refined exports rose to 40,000 tonnes in June, the highest
outflow since March 2013 but less than has been seen on several
occasions in the past. Of the total, 17,500 tonnes headed to
South Korea, which may explain the 10,000-tonne trickle of metal
onto LME warrant at exchange warehouses in Busan. But there
again, 21,000 tonnes left for Taiwan over May and June, none of
it apparently going anywhere near an LME warehouse, which
suggests that the Qingdao effect may be highly limited.
China bulls can take some heart from the continued downtrend
in the country's imports of copper scrap, down 15 percent in the
first half of the year after falling 10 percent last year. Less
scrap, likely due to a combination of price sensitivity and
tightness in other parts of the world, pushes manufacturing
demand into the refined metal sphere.
Imports of copper concentrate, meanwhile, continue to boom
as China absorbs the ongoing surge in mine production. After
rising by 29 percent last year, they were up another 22 percent
in the first half of this year.
China's net imports of primary aluminium jumped 267 percent
in the first half of 2014, a figure that flatters to deceive
since the extra volume amounted to no more than 121,000 tonnes,
a drop in the country's aluminium ocean.
More significant is the continued creep in what is coming
out of China in the form of semi-fabricated products, a
classification that may be overly loose, given local producers'
incentive to find a way round the prohibitive export tax on
Semis exports rose by four percent to 1.29 million tonnes in
January-June, extending a uptrend that has been running since
the start of 2013.
Bigger changes are evident at the aluminium raw materials
level, as China adapts to the January ban on exports of bauxite
from its previous main supplier Indonesia.
Indonesian imports have dwindled to next to nothing, just
45,000 tonnes over the second quarter, leading importers to
search further afield for new supply.
The Dominican Republic and Ghana have become regular
features of the trade report, China importing 1.0 million and
460,000 tonnes respectively in the first half. Bauxite imports
from Australia were flat year-on-year, but that may change going
forwards as Rio Tinto has just completed the
shuttering of its Gove alumina refinery, freeing up more bauxite
for the export market.
No surprise, either, that China's imports of alumina jumped
by 68 percent to 2.8 million tonnes as importers replace lost
bauxite with the intermediate product needed to make aluminium.
Indonesia's ban on nickel ore exports has been the hot topic
in the metal markets this year, sending the stainless steel
input on a super-charged rally.
Indonesia has been the main supplier of ore to feed China's
giant nickel pig iron sector and the steady dwindling of
shipments has caused total concentrates and ore imports to fall
by 26 percent so far this year.
There has been some offset from rising ore imports from the
Philippines, up 11 percent to 12.3 million tonnes, but the
quality is known to be lower to the point that some of what is
counted as nickel ore is best described as iron ore with nickel
As with bauxite and alumina, there has been a noticeable
displacement of import demand up the value chain with net
imports of ferronickel jumping 89 percent to 130,000 tonnes this
Nickel bulls, however, may want to note that there has so
far been no impact on China's appetite for refined nickel.
Imports actually fell by 11 percent to 76,000 tonnes in the
first half of this year, while net imports fell even harder to
just 31,000 tonnes, the lowest level in the first half of any
year since 2004.
That reflects a steady stream of exports through the first
six months of the year with a mini-surge in June itself. Last
month's exports of 18,000 tonnes marked a multi-year high.
Malaysia accounted for 7,600 tonnes of the July total,
raising the possibility that there was a distress delivery into
the nearest LME warehouse location against a short position.
But the underlying Q2 export trend was still strong,
implying a well-supplied local market despite the turbulence
coming from the Indonesian ore ban at the raw materials level.
With net refined zinc imports of 375,000 tonnes in the first
half of 2014, China's draw on metal from the rest of the world
increased by around 100,000 tonnes year-on-year.
It's an incongruous outcome given China itself is a massive
zinc producer and one that has been struggling for a long time
with overcapacity and resulting low production margins.
Most analysts still think that this flow of zinc into China
is in large part a displacement of stocks, fuelled by a
combination of copper-style collateral financing and arbitrage
It's noticeable that net imports of zinc alloy, arguably a
product closer aligned to manufacturing activity, fell by 11
percent to 52,000 tonnes over the first six months of this year.
Down too were imports of zinc concentrates to the tune of
Lead is the contrarian stand-out in China's metals trade
picture. The country has been a net exporter of refined lead
since the start of last year, even with a 10-percent export tax.
The trend continued into the first half of this year, with
net exports rising to 15,500 tonnes from 8,200 tonnes in the
same period of 2013.
There is a nagging suspicion that more may be leaving as
more lightly-taxed lead "product", a category that doesn't get
picked up in the headline trade figures.
China's imports of refined tin maintained the slow pace of
late 2013. Just 3,700 tonnes flowed into the country in the
first half of this year, down from 7,400 tonnes in the same
period of last year.
Is this because China's tin smelters have found an
alternative source of feed after the phase-out of lower-grade
exports from Indonesia?
Certainly, imports of tin raw materials from Myanmar, a
previously unknown source of the soldering metal, continue to
dominate the tin trade figures. Imports from the country
increased by 80 percent to 76,000 tonnes (bulk weight) in the
first six months of this year.
Or is China merely going through a destocking phase? And, if
so, is there a missing link in the trade figures? As with
refined lead there is a lurking suspicion that metal may
actually be leaving China, just not in a form that hits the
An ever-timely reminder that sometimes with China's metals
trade, it's what you don't see and therefore can't count that
(Editing by David Evans)