--Clyde Russell is a Reuters columnist. The views expressed
are his own.--
By Clyde Russell
LAUNCESTON, Australia, May 8 How long can
strength in China's commodity imports co-exist with weakness in
other key indicators, such as manufacturing?
If you accept the argument that China can't continue to
import record, or near-record, levels of major commodities while
experiencing slowing growth, then one of two outcomes becomes
Either commodity imports start to moderate to align more
closely with other economic data, such as the HSBC Purchasing
Managers' Index, which fell for a fourth straight month in
April, or China's growth shows evidence of re-accelerating.
So far this year, strength in commodity imports has tended
be put down to either one-off factors, or demand unrelated to
actual consumption, for example, buying iron ore in order to
secure financing to use in unrelated investments.
If these factors are the reason behind the seeming
disconnect between natural resource imports and the overall
economy, then the most likely outcome will be for imports of
crude oil, iron ore, copper, soybeans and other commodities to
ease in coming months.
Crude oil imports jumped 22 percent in April from March to
27.88 million tonnes, equivalent to 6.78 million barrels per day
(bpd), which exceeds the prior record high of 6.65 million bpd
The strength in crude imports comes amid slowing oil demand,
with a calculation of implied consumption coming out at 9.96
million bpd in the first quarter, a decline of 0.6 percent from
the same period a year earlier.
April's record oil imports also came amid maintenance at
several refineries, which normally trims demand.
The most likely explanation is that China has been adding to
commercial stockpiles, and the start up of two new refineries
certainly supports this view.
However, the extent of the strength in crude imports
suggests that strategic stockpiles are also being filled,
although this cannot be known for certain as this information
PRICE A FACTOR FOR IRON ORE, COPPER
Iron ore imports were the second highest on record in April
at 83.89 million tonnes, and the first four months of the year
has seen a jump of 21 percent from the same period in 2013.
While some of April's strength could be put down to higher
steel production, it also appears likely that some of the
imports were related to shadow financing deals, even though
anecdotal reports suggest the authorities are making it harder
for traders to use commodity imports as collateral for credit.
It may be that April represents the peak of imports for
credit purposes, implying that iron ore shipments may slow in
the next few months, or at least become more linked to steel
The other factor with iron ore is that weaker prices tend to
boost imports, irrespective of the state of steel demand.
Spot iron ore .IO62-CNI=SIP hit $104.70 a tonne, the
lowest so far this year, on March 11, just around the time many
cargoes for April delivery would have been booked.
Cheaper prices may also help explain the 7.2 percent gain in
copper imports to 450,000 tonnes in April from the previous
London copper dropped to its closing low for the
year on March 13, making it attractive for Chinese traders to
import the industrial metal.
China's State Reserves Bureau, the official stockpiler, was
also buying in April, which helped support local premiums and
thereby boosting the appeal of imports, Zhou Jibe, dealer and
senior analyst at China International Futures (Shanghai) Co Ltd,
Looking at the major commodity imports and it seems that
imports haven't been driven by strength in actual consumption,
with stockpiling boosting crude and copper, and shadow financing
doing the same for iron ore.
Whether strategic stockpiling continues apace is in the
realm of speculation, but it does seem likely that the boost to
commodity imports for financing deals will be lower in the next
However, if the Chinese economy does start to pick up
slightly, some real demand for commodities may offset any
decline from stockpiling and financing.
(Editing by Ed Davies)