Russell: Bearish or bullish? China’s variegated June commodity imports

On the soft side of the ledger were crude oil, iron ore and copper, while recording solid gains were coal and natural gas, both pipeline and liquefied natural gas (LNG).

A further complicating factor is working out how much of a slowdown in imports of oil, iron ore and copper is due to supply constraints, or whether there is a genuine loss of appetite for these commodities among Chinese buyers.

Crude oil is a commodity where supply is being tightened by major exporters in the OPEC+ group in a bid to drive prices sustainably higher.

But it’s also a commodity where Chinese refiners have shown a recent willingness to dip into the massive stockpiles they accumulated during last year price slump, caused by both the collapse in demand during the coronavirus pandemic and a brief price war between Saudi Arabia and Russia.

June imports of crude oil were 9.77 million barrels per day (bpd), up a touch from May’s 9.65 million bpd, but down from 12.9 million bpd in June last year, a record month as the first of the cheap crude snapped up during the April 2020 price war started arriving.

Importantly, imports for the first half of 2021 were 260.66 million tonnes, down 3% from the same period in 2020 and the first time imports have declined in the first half of a year since 2013.

It is also the case the authorities have made it harder for smaller, independent refiners in China to buy crude, and this coupled with refinery maintenance season would have helped curb crude imports in June.

But it also appears that Chinese refiners are prepared to use stockpiles if they deem prices to have risen too far, too fast, with calculations showing that they have drawn on inventories in four of the last eight months, including at a rate of about 589,000 bpd in May.

If crude imports were soft in June, the weakness certainly didn’t extend to other energy imports, with coal at 28.39 million tonnes, a gain of 35% from May and the strongest month so far this year.

Rising electricity demand and insufficient domestic supply boosted demand for imported coal, although weakness in demand in the first quarter meant that first half imports were down 19.7% from the same period a year earlier.

Natural gas imports from LNG and pipelines remained elevated at 10.21 million tonnes last month, compared with 10.32 million tonnes in May.

For the first six months of the year, natural gas imports were up 23.8% to 10.21 million tonnes, underlining China’s ongoing switching to using the cleaner-burning fuel to replace coal in industrial processes and residential buildings.

Soft metals

Looking at the two major metal imports and the first impression is that both iron ore and copper were weak outcomes in June.

Iron ore imports slipped to a 13-month low of 89.42 million tonnes in June, down 0.4% from May and 12.1% below June 2020.

But the drop is more likely related to ongoing supply issues, with number two exporter Brazil still struggling to ramp up volumes in the midst of its ongoing coronavirus pandemic, and top shipper Australia also saw exports dip slightly in June amid operational and maintenance issues.

China’s copper imports declined for a third straight month in June, with imports of unwrought copper dropping 3.9% from May to 428,438 tonnes, taking the decline for the first half of the year to 1.6% from the same period in 2020.

Higher international prices for the industrial metal and an easing of manufacturing growth dented China’s appetite for copper.

Related Article: Copper mining is Opec on crack, so why is the price falling?

Overall, what emerges from the June trade data is that China’s demand for commodities is still solid, but the strong growth seen in the second half of last year and the first quarter of this year is moderating.

Part of this is the influence of higher commodity prices, part of it is a likely easing in the supercharged economic growth rate sparked by the recovery from the pandemic, and finally part of it is ongoing supply issues.