COLUMN-China commodity imports just enough to support growth view: Clyde Russell

04/10/2013

--Clyde Russell is a Reuters market analyst. The views expressed are his own.--

By Clyde Russell

LAUNCESTON, Australia, April 10 (Reuters) - China's imports of key commodities such as crude oil, copper and iron ore recovered just enough in March from February's holiday-affected slump to support the view of a modest economic re-acceleration.

A recovery in imports after the week-long Lunar New Year holiday last month was always on the cards, with the extent of the increase likely to be interpreted as a sign of just how fast the Chinese economy is growing.

The best answer appears to be that growth seems steady, with the level of commodity imports supporting the gentle increase in the March Purchasing Managers' Indexes, which pointed to gross domestic product expanding about 8 percent in 2013.

Crude oil imports totalled 23.05 million tonnes in March, up 10.9 percent from February's 20.78 million.

However, in barrels per day (bpd) terms, March's 5.43 million was virtually unchanged from February's 5.42 million.

Crude imports stood at 5.59 million bpd in the first quarter, down from 5.66 million in the same period last year.

At first blush this seems likely a fairly bearish outcome for crude demand in China, but it should be remembered that the first half of 2012 saw large oil purchases for strategic and commercial stockpiling.

It's likely that as much as 400,000 bpd was diverted to storage in the first half of last year, and subtracting that figure from overall imports leaves about 5.26 million bpd being used for actual consumption in the first quarter of 2012.

Assuming that no current crude is being stockpiled, this would imply that the first quarter of this year saw crude consumption rise by about 330,000 bpd over the corresponding period in 2012.

Of course, it's not that simple and one factor to account for is the large slump of 33.6 percent in net fuel imports, as Chinese refiners use more of their crude throughput to export refined fuels.

While imports of refined products have dropped 3.4 percent in the first quarter of 2013 from the same period last year, exports have surged 20.2 percent.

The impact of higher Chinese fuel exports is being felt by Asian refiners, with the profit margin of a Singapore-based plant dropping to $5.38 a barrel on Tuesday from $10.49 a barrel in February.

While Chinese refiners still have excess capacity, it is unlikely they will import more crude and export more fuels in the short term.

Rather, domestic demand growth will drive increases in crude imports, and this means that in the absence of renewed strategic stockpiling, imports are likely to remain below or close to the levels of last year, at least for the first half of the year.

After that, there should be strong gains in imports when compared to the same month in 2012 as China stopped stockpiling in the second half and actually ran down commercial inventories as economic growth slowed at that time.

Turning to iron ore, and the jump of 14.4 percent in March imports to 64.55 million tonnes from February's 56.42 million tells more about how weak February was than about any strength last month.

For the first quarter, imports of the steel-making ingredient are flat with the same period a year earlier, in what is probably a reflection of higher prices.

Benchmark Asian spot iron ore prices <.IO62-CNI=SI> reached a 15-month high of $158.90 a tonne on Feb. 20, and had been rising for several weeks prior, when many cargoes for March delivery would have been booked.

Prices have since fallen as low as $132.90 a tonne on March 14, a drop of 16 percent from the peak this year, and they closed on Tuesday at $139.10.

The moderation in prices should help stimulate demand, but only if steel consumption, which is largely driven by property and infrastructure, holds up.

Copper imports also rebounded, with unwrought copper jumping 7.2 percent to 319,603 tonnes in March.

But as with iron ore, in year-to-date terms the numbers look less impressive, with imports slumping 28.9 percent in the first quarter from a year earlier.

This has less to do with price, given London copper slumped 8 percent from the year-high of $8,305 a tonne to $7,630 on Tuesday, and more to do with the overhang of inventories built up last year for financing deals.

Imports were boosted by an attractive arbitrage between London and Shanghai prices, and this could also boost imports again in April.

But it will take lower prices to suck in more imports, as the weak environment in Europe creates uncertainty over China's exports, which rose 10 percent in March, just below forecasts.

However, overall imports rose 14.1 percent, mainly on the back of higher commodity volumes, exceeding the 5.2 percent consensus and leaving China with an unexpected trade deficit.

So the impetus for further commodity import growth now depends on domestic demand and the external sector. (Editing by Clarence Fernandez)



Story Copyright © 1999-2014 Reuters HedgeWorld All rights reserved.