China’s metal imports falter, raw materials still robust
China’s imports of refined base metals faded over the course of the first half of 2019.
Purchasing managers indices, both the official and the Caixin versions, remain below the growth-contraction threshold with a weak automotive sector a particular source of metal demand concern.
But in part lower refined metal imports are also due to the continuing build-out of domestic refining capacity, which is reducing China’s need for imports but stimulating the country’s purchase of raw materials.
REFINED COPPER IMPORTS SLIDE; CONCENTRATES BOOM
These two themes define China’s trade in copper so far this year.
Refined copper imports fell by 12% to 1.60 million tonnes in January-June with net imports sliding harder by 16% thanks to slightly higher exports relative to 2018.
China’s net draw on units from the rest of the world dropped by 266,000 tonnes, which helps explain the 155,000-tonne rise in London Metal Exchange (LME) stocks over the same period.
Anaemic demand is being compounded by another growth spurt in the country’s domestic refining capacity.
Increased competition for mined concentrates remains the driver of rising raw material imports. They jumped by 10% to 10.6 million tonnes (bulk weight) in the first half of 2019, extending an uptrend that has been running continuously since 2011.
It’s possible that falling scrap imports are also forcing more smelters to turn to the concentrates market for raw material.
Scrap imports slumped by 32% last year as the Chinese authorities raised purity threshold requirements and imports fell another 25% in the first half of this year as Beijing steadily tightens the quality rules.
NICKEL ORE AND NICKEL PIG IRON IMPORTS BOOM
Refined nickel imports hit a 10-month high of 21,500 tonnes in June. More than half was Russian material, reinforcing the perception there has been a renewed flow of Russian full-plate cathode from LME warehouses to China to satisfy short positions on the Shanghai Futures Exchange.
Overall, though, first-half imports extended last year’s slide, falling by 18%, or 21,500 tonnes, from the same period of 2018.
Ever more nickel units for the stainless steel sector are being generated in the form of nickel pig iron (NPI), both in China itself and in Indonesia.
China’s NPI producers have stepped up their purchases of nickel ore to the tune of 14% in the first half of the year with the Philippines and Indonesia remaining the two largest suppliers.
More Indonesian material is making its way to China in the form of NPI thanks to the ongoing build-out of processing capacity in Indonesia.
This material confusingly shows up as ferro-nickel in the customs reports but the give-away is its lower value. Implied average pricing for Indonesian “ferro-nickel” was $1,950 per tonne in June. Imports from Colombia, by contrast, were valued at twice that level at $3,955 per tonne.
The near doubling of “ferro-nickel” imports in the first half of the year is largely down to this Indonesian NPI. Imports from Indonesia were 99,000 tonnes in June, accounting for 70% of the total.
TIN FOCUS ON MYANMAR
China switched to being a net exporter of refined tin last year after the removal of the 10% export tax that had been in place since 2008.
Net exports more than doubled over the first half of this year to 3,983 tonnes.
China’s ability to generate enough metal both to fulfill its own needs and to lift exports is predicated on the supply of tin concentrates from its southern neighbour Myanmar.
The Myanmar import flow mushroomed over the middle of the decade but now seems to be in structural decline as reserves dwindle in the Wa mining region.
Imports of concentrate, just about all of them from Myanmar, fell by 25% last year and they were down another 28% in the first half of this year.
ZINC AND LEAD IMPORT MOMENTUM FADES
Zinc and lead have been the outliers in the broader China picture for some time.
Both markets are exiting a period of raw materials tightness which has hit run-rates at Chinese smelters. Lower domestic supply has stimulated demand for refined metal imports, spectacularly so in the case of lead, but the import momentum is showing signs of fading.
China flipped to being a net importer of refined lead in 2017 and 2018 and that trend carried over into 2019 to the tune of 68,000 tonnes.
However, net imports of 3,900 tonnes in June were the lowest monthly tally since May of last year and it’s worth noting this has coincided with accelerated imports of lead concentrates.
Lead concentrate imports fell in both 2017 and 2018 but this year has seen a sharp turnaround with imports up 46% at 754,000 tonnes (bulk weight).
Refined zinc imports have also been booming but here too there are signs of fading momentum.
Net imports of 48,000 tonnes in June were the lowest monthly tally since February, reflecting a jump in exports to 8,600 tonnes, the fastest outbound flow since June 2015.
Interestingly, the largest component of those exports, 5,764 tonnes, was heading to Malaysia, where LME warehouses at the port of Johor have seen a trickle of arrivals since the start of July.
Zinc concentrate imports continue to run marginally below year-earlier levels but China’s smelters have been steadily turning on the taps over the last couple of months.
National refined zinc output rose by 10% in June, the best monthly performance so far this year amid signs that the smelter bottleneck is starting to clear.
It’s moot how long China can both lift domestic run rates and carry on importing refined metal at recent rates.