China commodity imports less mixed that they appear

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Publish time: 19th November, 2012      Source: ChinaCCM
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China's commodity imports for October appear to present a mixed picture, with strength in oil and weakness in iron ore and copper, but the overall message should be that economic momentum is once again accelerating.
There is always a risk in reading too much into one month's data, and this is especially the case for October, which was distorted by the week-long holiday at the start of the month.
For this reason it's better to look at the two-month picture presented by September and October data when trying to draw conclusions about demand in the world's biggest commodity consumer.
Starting with crude, and October's imports at 23.68 million, or about 5.58 million barrels per day (bpd), the third-highest this year.
September's imports were 20.08 million tonnes, giving a two-month total of 43.76 million tonnes, a 6 percent increase on the 41.25 million tonnes for the same two months in 2011.
While import demand in October would have been boosted by the return of refineries from maintenance, coupled with the commissioning of new units in the past few months, the underlying picture is still one of fairly strong demand growth.
Considering that the commentary as recently as September was overwhelmingly bearish on China's commodity demand outlook, the view presented by the September-October numbers shows that the negativity wasn't justified.
There is also likely an element that crude buying was boosted by lower prices, with Brent dropping from a peak of $116.90 a barrel in early September to a low of $108.19 by the 19th of that month.
Given that Brent prices have remained with a range around $105 to $115 a barrel in recent weeks, Chinese refiners may well be encouraged to increase stockpiles that appear to have been tapped in the third quarter after the significant excess buying in the first half of the year.
But it also seems reasonable that oil demand growth of 6 percent will be what China averages in the next few quarters, which is large enough to show the economy maintaining strong growth, but also quite a moderation from the recent boom years when demand growth was above 10 percent a year.
If oil imports flattered to deceive in October with their seeming strength, then the opposite was true for iron ore and copper.
Iron ore imports fell 13 percent in October from the previous month to 56.4 million tonnes.
But together with September's 65 million tonnes, imports for the two months were 9.8 percent higher than the same two months in 2011.
That doesn't sound like a weak outcome at all and is above the 8.9 percent year-to-date gain.
There may be a price element in iron ore imports as well, as many of the October cargoes would have been booked when Asian spot prices were at the weakest in three years.
Spot iron ore .IO62-CNI=SI slumped to a low of $86.90 a tonne on Sept. 4, having been close to $150 a tonne as recently as mid-April.
The recovery in prices to $122.10 a tonne on Monday may temper some spot buying, but the overall picture for iron ore is one of resilience in demand, and again this has confounded the bearish forecasts that prevailed recently.
Copper did sound a note of caution, with unwrought imports dropping 18.5 percent from September and 18.5 percent from a year earlier.
While some of this can be attributed to supply disruptions at Chilean copper mines, there does appear to be some underlying weakness as the two-month picture shows that September-October imports were 6.8 percent lower than for the same period last year.
However, it is also worth noting that any recovery in copper demand growth is likely to lag that for iron ore and crude, as it is mainly used in industrial production of finished goods, rather than the more preliminary consumption typical of iron ore and oil.