Reuters reported that growth in China's demand for coal and crude oil could ease more than expected in the second quarter as Japan's earthquake and nuclear crisis take a toll on China's industrial production.
Analysts said that China's manufacturing growth hit its slowest pace in at least half a year in February and was already expected to slow further even before the earthquake in Japan struck. The massive earthquake and subsequent nuclear fallout in Japan, China's second largest trading partner, could well force China's growth to slacken at a quicker pace and drag its energy demand lower in the coming months as thousands of Chinese factories supplying textiles and electronic parts to Japan scale down operations.
Mr Victor Shum said that "The economic impact on China from Japan's crisis could be quite profound. If Japan's GDP falls, China will also feel the pain and that will naturally hit its energy consumption as the industrial sector slows."
He added that the nuclear crisis and rolling blackouts were major stumbling blocks to a swift recovery in Japan's industrial activities. Japan is China's biggest source of imports, accounting for about 13% of its purchases from abroad, and is China's second biggest export destination, taking 8% of its shipments.
According to official government data, China's exports to Japan were largely dominated by textiles and processed food, while its growth in exports to Japan over the past year was mainly driven by machinery and electronic goods such as mobile phones, LCD TVs and computers. A slowdown in industrial activity would have a sizeable impact on consumption of thermal coal, which accounts for 80% of total power generation, in the April quarter.
Mr Raymond Chan, Standard Chartered's coal analyst, said that "Monetary tightening policies were already hurting consumption. The seasonal demand low in Q2, combined with the Japan tragedy, is going to weigh on imports a lot more."
China's total coal imports dropped 47.6% from a year ago to 6.76 million tonnes in February, the lowest since April 2009, due to a shorter month and week long holiday. Many industry participants said sluggish import demand might now extend into the third quarter.
Several analysts said the impact of weaker industrial output on crude oil could be more muted as any slide in domestic demand would likely be offset by refineries' moves to ramp up production to sell into Japan. Some analysts said final import numbers could also be distorted by possible efforts to build strategic oil reserves.