COLUMN-The three bull standouts in China's first-half metals trade: Andy Home

(The opinions expressed here are those of the author, a columnist for Reuters.)



LONDON, July 25 (Reuters) - China’s imports of base metals were once the bullish drumbeat to which the global market marched.

Those days are no longer.

Not just because of the broader Chinese economic slowdown story, but because the country’s own refined metal production capacity has evolved to the point of self-sufficiency in some industrial commodities.

China, for example, has been a small net exporter of refined lead for the last three years, a trend that continued in the first half of 2016.

It still imports primary aluminium but the amount is now so small, 20,400 tonnes on a net basis in the first half, that it amounts to no more than a drop in the ocean.

The country’s influence on global supply chains in such cases has shifted upstream to the raw materials needed to produce metal, or, in the case of aluminium, downstream to exports of semi-manufactured products.

Three base metals, however, are still being imported in large amounts and flows of all three increased in the first six months of the year.

Each, though, has its own unique story line, mitigating against any linear read-through to the underlying health or otherwise of the Chinese manufacturing sector.

Graphic on China’s net imports of refined metals:

Graphic on China’s imports of raw materials:


Net imports of refined zinc more than doubled to 280,800 tonnes in the first half of 2016.

This was due to an increase in inbound flows, up 48 percent to 291,900 tonnes, and a sharp falling-off in exports, down to 11,100 tonnes from 70,900 a year earlier, when the export tailwinds from the 2014 Qingdao port scandal finally lost momentum.

Accelerated refined zinc imports strengthen this market’s bull narrative of raw materials shortfall.

Global mined zinc production has fallen hard thanks to mine closures and Glencore’s 500,000 tonnes of temporary cuts, and that tightening of the concentrates supply chain appears to be translating into reduced availability for Chinese smelters.

Concentrate imports of 1 million tonnes (bulk weight) in the January-June period marked a 30 percent contraction from last year.

China’s own production of refined zinc slipped by 1 percent, or around 45,000 tonnes, over the same period, according to the National Bureau of Statistics (NBS).

In this context, rising imports of zinc in metallic form are a logical development and one that will add fuel to an already bubbling market, which saw the London three-month price hit a 14-month high of $2,294.50 per tonne last week.


Refined nickel imports jumped by 189 percent to a record 226,100 tonnes in the first half of the year.

At first blush, this looks like a repeat of the zinc story with the country importing more refined metal to offset reduced availability of raw materials, in this case the nickel ore used by China’s nickel pig iron (NPI) sector.

Nickel is also on a supply-inspired bull surge with the focus on an environmental clampdown on nickel mining in the Philippines, which has emerged to fill the supply gap left by Indonesia when Jakarta banned all nickel ore exports in 2014.

Nickel ore imports from the Philippines shrank almost 25 percent in the first six months of 2016, although this was more to do with a particularly stormy monsoon season than the new government’s drive to clean up its mining sector.

That said, there is plenty of anecdotal evidence of declining NPI production in China, which should mean a greater dependence on imports of refined nickel.

But there is a kink in this particular bull story.

The surge in refined metal imports might reflect displaced demand for nickel units in China but there is no doubt it also reflects the mass movement of stocks from the London Metal Exchange (LME) to the Shanghai Futures Exchange (ShFE).

Since the ShFE listed Russian full-plate nickel as a good-delivery brand against its booming nickel contract in the middle of last year, Russian imports have surged.

They totalled 159,400 tonnes in the first half of 2016, up from 61,300 tonnes in the same period of 2015.

A good part of those imports has not entered the manufacturing supply chain in China but is now sitting in ShFE-registered warehouses, where stocks total 105,438 tonnes.

An emerging bull narrative may well be lurking in China’s nickel trade figures but it is still being overstated by the gravitational pull of units to the ShFE.


Increased copper imports have nothing to do with raw materials shortages.

The world is awash with copper concentrates and China is importing more than ever before, 8 million tonnes (bulk weight) so far this year, up 34 percent on last year and a fresh six-month record.

Little wonder the country’s own refined production of copper has also increased, by 8 percent, so far this year, according to NBS data.

So why is the country importing more, not less, copper?

And it is, despite all the recent attention to the amount of copper being exported, mostly to LME warehouses in Asia.

Exports of 203,000 tonnes in the first half of the year were almost as much as China exported in the whole of 2015, but were still dwarfed by the amount of metal flowing in the opposite direction.

Net imports rose by 20 percent, or around 315,000 tonnes, to 1.87 million tonnes in the first half of 2016.

The strength of China’s copper appetite has surprised just about everyone, but where is all the metal actually going?

One potential answer might lie in the power sector, a key end-user of copper.

Investment in the Chinese grid has risen by around a third this year, partly reflecting the impact on the year-earlier figure of an anti-corruption drive but also what analysts at Barclays Capital call “real growth in power grid spend”.

That corruption investigation deferred targeted investment to the second half of 2015, with every sign it is still catching up.

However, according to BarCap, other end-use sectors are at best mixed and the bank goes on to warn that “while China’s copper sector has held up so far this year, its recent strong performance is dependent on one sector and, thus, particularly vulnerable”. (“China’s copper check-up”, July 25)

Maybe make that the “two-and-a-half bull standouts in China’s first-half metals trade.”

Editing by Dale Hudson