Opinion: China’s March commodity imports were subdued, more softness ahead

Imports of crude oil, natural gas, iron ore, coal, and copper were all weaker in March when compared to the same month last year, according to official customs data released on Wednesday.

For the first quarter, only imports of unwrought copper saw an increase over the same period in 2021, underscoring what has been a soft start to the year for commodity demand in the world’s second-biggest economy.

China’s commercial capital Shanghai has locked down its 25 million residents for almost three weeks as authorities attempt to contain the country’s biggest outbreak of covid-19 since the coronavirus was first identified in the city of Wuhan in late 2019.

The restrictions in Shanghai, and in other Chinese cities, are starting to ripple through global supply chains, with some factories being forced to close and delays increasing at ports.

It’s likely that the determination of the authorities to stamp out covid-19 will lead to ongoing lockdowns and economic disruption in coming weeks, and this will eventually feed into China’s commodity imports.

Crude oil imports were 10.06 million barrels per day (bpd) in March, down 14% from March last year and also lower than the 10.53 million bpd average for January and February.

China combines trade data for January and February, but it does appear that March’s crude imports were slightly higher than those for February, which Refinitiv Oil Research pegged at 9.51 million bpd.

Nonetheless, imports of just above 10 million bpd can hardly be described as strong, but they are also probably not quite as weak as the 14% decline from March last year implies.

It’s worth noting that March crude imports would have been arranged mainly in January, meaning they don’t reflect the current economic situation, or the loss of demand caused by the lockdowns.

April imports also won’t reflect this, and are thus likely to come in around the 10 million bpd mark.

However, from May onwards crude imports may decline, especially since China’s top supplier, Saudi Arabia, hiked its official selling price for May-loading cargoes to a record premium to the Oman/Dubai benchmark, a move that has prompted some refiners to take less than their contracted volumes.

Price impact

High spot prices for liquefied natural gas (LNG) appear to already be taking a toll on China’s imports, with March arrival of 7.99 million tonnes, from both pipelines and as LNG, showing an 8.5% decline from March 2021.

LNG imports typically slacken in the shoulder season between winter and summer peaks, but this trend may be exacerbated this year given the spot price of the super-chilled fuel remains at historically high levels, and is likely to remain elevated as Europe seeks more LNG as it tries to wean itself from Russian supplies.

Coal imports of 16.42 million tonnes in March were 40% below the same month last year, and imports in the first quarter were down 24.2% from the same period in 2021.

Part of the decline is related to the unexpected and short-lived ban on exports imposed in January by Indonesia, which is China’s biggest supplier.

But strong domestic production and high seaborne prices are also likely to keep coal imports subdued in coming months.

Supply issues may also have had a hand in the decline in iron ore imports, which were 87.28 million tonnes in March, a drop of 14.5% from the same month last year.

Weather-related disruptions in number two exporter Brazil cut shipments to China, which buys about two-thirds of global seaborne iron ore.

Whether iron ore imports rebound in coming months largely depends on whether China is successful in combating covid-19, and if so, how hard the authorities hit the economic accelerator in order to boost growth.

Copper is also exposed to how quickly China ends the current lockdowns, and there are already signs of weakness in imports of the key industrial metal.

March imports of unwrought copper were 504,009 tonnes, down for a third month and 9.5% below the level from March 2021.

The soft trend in copper imports is likely to persist as long as lockdowns disrupt manufacturing and construction.

However, weakness now does raise the possibility of strength in the second half of the year, especially if Beijing opens the stimulus taps in order to meet its economic growth target.

(Editing by Christopher Cushing)