So far this year, China has imported growing volumes of most of the key commodities, with the notable exception of crude oil.
Chinese purchases of LNG, coal, copper, and iron ore jumped in the first half of the year compared to year-ago levels, despite a continued property crisis and a faltering economy, which disappointed market bulls with growth coming in below expectations in the second quarter.
If the Chinese economy is weaker than thought, then why is China importing more of the commodities that are typically viewed as a gauge for the health of the economy?
The answer may lie in the Chinese propensity to stock up on commodities at cheaper prices, says Reuters’ columnist Clyde Russell.
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During the first half of 2024, China’s imports of crude oil, natural gas including LNG, coal, iron ore, and copper appear to be inversely correlated with the price trends of these commodities on international markets.
Chinese crude oil imports dropped by 2.9% to about 11.05 million barrels per day (bpd) in the first six months of the year.
Crude oil prices rose between January and early April, and after a weaker period in May and early June, they have rebounded from a June low of below $80 per barrel to around $85 a barrel this week.
True, crude oil demand appears shaky in China amid weak fuel consumption and refining margins, which have prompted many independent Chinese refiners to slash crude processing rates.
But the lower import rates so far this year may also have been motivated by stabilizing and gradually rising oil prices. It’s no secret that China prefers to buy its crude as cheaply as possible—one of the reasons it’s now a key customer of Russia’s crude, which is embargoed in the West.
In contrast to crude oil, China’s import of LNG, coal, copper, and iron ore all rose in the first half of the year with monthly trends in inverse correlation to prices.
China’s imports of natural gas, including via pipeline and LNG cargoes, rose by 14.3% in the first half of 2024 compared to the same period of last year. Despite higher import volumes, the Chinese import bill for the first half fell by 0.8% to $31.7 billion, official Chinese data showed, as LNG prices were lower than year-ago levels early this year.
China boosted its natural gas imports in the period January to April as it looked to stockpile fuel for the power plants ahead of the summer amid international prices that were half last year’s levels in the first four months of 2024. Chinese imports of natural gas were estimated to have jumped by 21% between January and April compared to a year earlier.
Imports of coal also rose by 12.5% in the first half compared to a year earlier. Relatively low international prices also played a role in the higher import volumes, although weaker domestic coal output earlier this year and the need to avoid power shortages in peak summer likely contributed a lot to the higher coal import levels.
The first-half trend in iron ore imports was perhaps the most telling sign of China taking advantage of low prices to boost inventories while apparent immediate demand is weak, Reuters’ Russell notes.
China’s imports of iron ore, used to make steel, grew by 6.8% between January and June compared to year-ago levels.
However, steel demand in the first half of 2024 was weak amid the property crisis, which saw China’s new home prices crumbling in June at the fastest rate since 2015 and deepening the decline from May.
China has boosted stockpiles of iron ore this year, taking advantage of the price slide, which fell from a January high of $143 per ton to below $100 a ton in April before steadying at around $105-110 per ton.
At the same time, China’s copper, diesel, and alumina exports soared in June compared to the same month of 2023, with copper exports surging to a record high as sluggish domestic demand weighed on Chinese commodities consumption.
By Tsvetana Paraskova for Oilprice.com