LAUNCESTON, Australia, June 7 (Reuters) – China’s imports of key commodities showed a mixed picture in May, with strength in crude oil and iron ore offset by weakness in copper and signs of a peak in coal.
The overall performance suggests that commodity imports are starting to show the same unevenness that has characterized the recovery in the world’s second largest economy after Beijing ended its strict zero-COVID policy that stalled growth last year.
Crude oil was the top performer in May. Imports rose to the equivalent of 12.11 million barrels per day (bpd), up from 10.32 million bpd in April and just below March’s 12.32 million bpd, the highest in a year per day since June 2020.
The stronger performance was primarily due to refiners completing scheduled maintenance and increasing throughput to build inventories ahead of the peak summer demand season.
There was also likely an element of anticipation of stronger demand as the economy reopens. However, whether this actually happens remains to be seen given the mixed picture of recent economic data.
Given that the delay between arranging crude shipments and physical delivery can be as much as three months, May oil imports reflect refiners’ expectations rather than actual demand conditions.
This raises the possibility that crude oil imports could ease slightly in the coming months as refiners have become more cautious about the economic outlook and after prices have risen as the OPEC+ producer group took action to cut production in early April.
However, Chinese refiners are still able to buy cheap Russian crude as well as discounted cargoes from Iran and Venezuela, helping to keep import volumes stable.
Iron ore was another area with strong import potential: 96.18 million tons of the steel raw material arrived in May, compared to 90.44 million in April and 92.52 million in the same month in 2022.
Demand for iron ore held up largely as Chinese mills, which produce just over half of the world’s steel, ramped up production, with production up 0.6% in May from the same month last year.
But similar to crude oil, there are some potential bearish and bullish factors that make it more difficult to assess the outlook for the coming months.
On the downside, there are signs that manufacturing and construction are struggling to gain momentum, while infrastructure spending is also failing to generate any significant stimulus.
As the global economy slows and China’s exports come under increasing pressure, optimism about steel demand can be difficult to justify.
However, bad news is sometimes good news for commodities in China. Market watchers believe Beijing will try to boost the economy, most likely by opening the taps on steel-intensive infrastructure projects.
This could keep iron ore demand steady, although ultimately there must be actual evidence of stronger steel consumption rather than just expectations that activity will pick up.
COPPER, COAL
Copper imports were also mixed: In May, imports of raw copper and products totaled 444,010 tonnes, down 4.6% from the same month last year but up from April’s 407,293 tonnes.
However, imports fell 11% in the first five months of the year compared to the same period last year, suggesting that demand for the industrial metal is weak. That assumption is supported by weakness in the official manufacturing PMI, which fell on the second month of contraction in May.
Coal imports were also mixed, falling to 39.52 million tonnes in May from 40.68 million tonnes in April, but almost doubling compared to 20.55 million tonnes in May last year.
Coal imports have been resilient in recent months as China switched to heat generation amid lower hydropower production.
Falling sea prices have also made imports more competitive with domestic offers, but this momentum has largely reversed in recent weeks.
High inventories at utilities could also dampen demand for coal imports, suggesting arrivals could fall in June.
The opinions expressed here are those of the author, a columnist for Reuters.
Edited by Robert Birsel
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Clyde Russell
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