China has switched from driving global demand for major
commodities to being a drag on growth, with July’s customs data confirming the
weakening trend for imports of crude oil, iron ore and copper.
The exception to the
trend was coal, but the sharp gain in July’s imports of the polluting fuel are
more a result of China having to go the seaborne market because of domestic
policies that curbed local output.
China, the world’s
biggest importer of crude oil, brought in 41.24 million tonnes in July,
equivalent to 9.71 million barrels per day (bpd), according to official customs
data released on Aug. 7.
This was down from
June’s 9.76 million bpd, slightly above May’s 9.65 million bpd, and below
April’s 9.82 million bpd.
Crude imports for the
first seven months of this year are 5.6% below that for the same period in
2020.
That percentage
decline may accelerate in coming months given the strong imports in the second
half of 2020 will give a higher base for comparison.
Imports of natural
gas, both from pipelines and as liquefied natural gas (LNG), also declined in
July to 9.34 million tonnes from June’s 10.21 million tonnes.
However, this is more
likely related to a scarcity of available cargoes of spot LNG as demand for the
super-chilled fuel soars across Asia to meet rising electricity consumption
during the summer air-conditioning peak.
Among metals, iron ore
imports fell for a fourth consecutive month, with 88.51 million tonnes of the
steel raw material arriving in July, down from 89.42 million in June and some
21% below the record of 122.65 million from July last year.
Imports for the first
seven months of the year are now 1.5% below the same period last year.
It could be argued
that weather-related supply issues in top exporter Australia and
coronavirus-related production impacts in number two exporter Brazil were
behind some of the weakness in iron ore imports, but this was largely a first
quarter story.
Rather it appears that
official curbs on steel output are finally filtering through to demand for iron
ore.
Given that China buys
about 70% of global seaborne volumes, it’s little surprise that the iron ore
price has retreated sharply in recent weeks, shedding about 27% since a record
high in May to end at $171.30 a tonne, according to assessments by commodity
price reporting agency Argus.
Copper imports also
fell for a fourth straight month, with China buying 424,280 tonnes of unwrought
metal, down from June’s 428,437 tonnes and only slightly more than half the
record 762,211 tonnes from July last year.
The release of 50,000
tonnes from China’s state reserves and a loss of some momentum in key
manufacturing indexes are most likely behind the softer imports of the
industrial metal.
Additionally a change
in import rules to allow purchases of higher-grade scrap copper also likely
weighed on imports of refined copper, and since this a structural change, it
may continue to have an impact in coming months.
Coal was the exception
to general softness in China’s imports of major commodities, with shipments in
July reaching a 7-month high of 30.18 million tonnes, 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% from the same period in 2020,
reflecting that the strength is a recent phenomenon and is related to a loss of
domestic output amid mine closures for safety inspections.
With China now
re-opening mines, and the summer power demand peak unlikely to last beyond
August, the risk is that coal imports moderate in coming months.
Overall, the July
trade data shows that China’s commodity imports have moderated from the robust
levels associated with last year’s stimulus as part of Beijing’s efforts to
boost the economy in the wake of the pandemic.
It’s likely that the
rest of 2021 will see imports more around levels recorded in 2019, prior to the
pandemic, rather than in the second half of 2020, when the stimulus was in full
swing.
This means that they
will remain solid, but won’t be the engine that drove commodity prices sharply
higher in the second half of last year and the first half of this year.
Mining.com