China’s imports of major commodities demonstrated both the possibility of an increase in 2023. And the fact that economic momentum needs time to develop.
For the first 2 months of 2023, official customs statistics from the largest commodity importer in the world revealed a mixed picture, with strength in coal & iron ore being offset by weakening in copper, natural gas, and crude oil.
Iron ore, a crucial raw ingredient for the production of steel, is more frequently a leading indicator since steel mills typically re-supply before expected demand, supporting the positive argument for China’s commodities demand.
The same is true with coal, particularly the coking coal needed to make steel as well as the thermal grade used to produce electricity. Since utilities will want to have enough stockpiles before any unexpected demand rises.
Contrarily, because physical cargoes are sometimes prepared months before they are actually delivered at ports and transported to refinery units, crude oil imports generally move more slowly than real or anticipated increases in demand.
In order to prevent distortions brought on by the erratic scheduling of the week-long Lunar New Year vacation. Which started on Jan 21 in 2023, China provides combined commodity trade data for Jan & Feb.
The data, which was issued on Tuesday, shows that for the first 2 months. Crude oil imports totalled to 84.06 million tonnes, or 10.40 million barrels per day.
This was down than the 11.32 million bpd observed in Dec & the 11.37 million bpd in Nov & was 1.3% below the same month in 2022.
The official figures also differed somewhat from vessel-tracking & port data gathered by Refinitiv Oil Research. Which indicated aggregate imports of 91.69 million tonnes, or 11.34 million bpd, for the first 2 months.
China’s Re-opening Likely to Impact the Demand for Commodities
The official figure and Refinitiv’s estimate diverge by almost 940,000 bpd. Which is an exceptionally large disparity. This suggests the reason for the discrepancy may be the timing of when cargoes are considered to have cleared customs.
There is a chance that the customs data may much improve in March. But in the meanwhile, China’s imports of crude oil have not increased significantly. Despite what independent tracking services claim.
Natural gas imports via pipelines or as LNG. Which plummeted 9.4% to 19.93 million tonnes in the first 2 months of the year, joined crude oil in the low column.
The most likely causes of the lacklustre outcome were high spot LNG costs, a very mild winter. And a greater dependence on coal.
Unwrought copper imports were similarly weak, falling 9.3% to 879,000 tonnes between Jan and Feb.
The Lunar New Year holiday likely reduced import demand. But it’s also important to note that copper imports were strong in 2022, indicating that manufacturers & builders have amassed substantial inventories & can use these before resuming their strong participation in the import market.
Mixed Pictures of Commodities Imports with Weak Demand
Imports of coal & iron ore showed symptoms of an economy rising from its now-abandoned zero-COVID policy.
In contrast to the general fall of 1.5% for the entire previous year, imports of the raw material for steel increased by 7.3% from the same time in 2022 to 194 million tonnes in the first 2 months of this year.
In anticipation of the heavier building season that begins as winter comes to a conclusion, steel mills have been stockpiling. And Beijing’s initiatives to boost GDP through infrastructure expenditure have stoked optimism.
Although it’s important to note that they were exceptionally low at the beginning of 2022. Coal imports totaled 60.64 million tonnes in the 1st & 2nd months, up 71% from the same time a year earlier.
The imports of coal were, however, roughly in line with December’s record of 30.91 million tonnes & November’s 32.31 million. Indicating that demand remains stable at quite substantial quantities.
It’s noteworthy to note that rather than ship arrivals, overland imports appear to have contributed to the strength in the first 2 months.
According to commodities experts Kpler, seaborne shipments totaled 47.72 million tonnes in the first two months, indicating that arrivals through overland from neighbouring nations were around 13 million tonnes.
This suggests a positive result for imports from Mongolia. Which typically exports more coking coal than thermal coal, another indication of a healthy steel sector.