China’s imports of major commodities lose some steam in July: Russell

China’s imports of major commodities lost momentum in July in a further sign that the world’s second-biggest economy is struggling to boost flagging growth.

China is the world’s biggest buyer of crude oil, copper and iron ore, and imports of these key commodities underperformed in July.

Crude oil imports dropped to 43.69 million metric tons in July, equivalent to 10.29 million barrels per day (bpd), which was down 18.8% from June’s 12.67 million bpd.

While June’s imports were the second-highest on record, the July outcome was the weakest since October last year on a barrels per day basis.

Imports of unwrought copper and copper products were 451,159 metric tons in July, up slightly from June’s 449,648 but down 2.7% from July 2022, according to data released on Tuesday by the General Administration of Customs.

In the first seven months of 2023, China’s copper imports slid 10.7% to 3.04 million metric tons.

Iron ore imports dropped to 93.48 million metric tons in July, down 2.1% from June’s 95.52 million.

For the first seven months of the year, imports of the key steel raw material were 669.46 million metric tons, up 6.9% from the same period in 2022.

However, strength earlier this year was largely related to the then prevailing market view that China would successfully stimulate its economy and revive the steel-intensive construction industry.

This narrative is now being challenged by series of weak economic numbers, the latest being a 14.5% drop in exports in July, which was worse than the expected 12.5% decline and the 12.4% fall in June.

Another factor to consider in assessing iron ore imports is China’s rising exports of steel products, with shipments jumping 9.6% year-on-year in July to 7.31 million metric tons, and exports for the first seven months gaining 27.9% to 50.89 million.

COAL EXCEPTION

The exception to the softer trend for major commodity imports in July was coal, with arrivals of 39.26 million metric tons, a tad lower than June’s 39.87 million, but 67% higher than July last year.

For the first seven months of the year China’s coal imports came in at 261 million metric tons, some 86% above the same period in 2022.

While last year was unusually weak for coal imports, the strength so far in 2023 is related to rising thermal power demand amid a shortage of hydropower generation.

High summer temperatures have boosted electricity demand and the falling price of seaborne thermal coal in recent months has made coal imports competitive with domestic supplies.
The strength in coal imports is largely a result of a set of domestic circumstances that have little direct correlation with the overall state of China’s economy.

The softer outcomes for imports of crude oil, copper and iron ore in July fit more with the view that China’s economy is struggling to ignite growth.

Crude oil will be the most interesting commodity to watch, given the strength in imports in the first half.

It’s too early to say whether July’s import performance was merely a blip before a resumption of strength, but there are several factors worth watching in the oil market.

The first is that the impact of rising prices in recent weeks on China’s imports won’t be apparent for months to come, given the lag between when cargoes are bought and when the oil is delivered.

This means that July’s imports were largely arranged at a time when global crude prices were close to the lowest so far this year, with Brent futures LCOc1 dropping to just above $70 a barrel in early May.

With Brent trading around $85 a barrel currently, China’s refiners may choose to dip into their ample stockpiles and trim imports in coming months, a move that would undercut the market expectation for strong Chinese demand in the second half.

China added just under 1 million bpd to inventories in the first half of the year, according to calculations based on official numbers for crude imports, domestic output and refinery processing.

This means Chinese refiners have options to use stored crude should they deem the cost of imports have risen too much, or gained too rapidly.
Source: Reuters (Editing by Lincoln Feast)