POLITICAL ECONOMY

China coal and oil demand strong but copper appetite sickly in May

While energy mineral imports increased sharply in May, China's overseas copper imports slackened and iron ore import growth began to waver.

Author: Carrie Ho and Judy Hua
Posted: Friday , 10 Jun 2011

SHANGHAI/BEIJING (Reuters) - 

China showed robust demand for crude oil and coal in May, shrugging off higher prices to boost imports by more than 20 percent, but its appetite for overseas copper supplies remained sickly and iron ore buying showed signs of ending a strong run.

Economists are watching closely for signs of slowing economic growth in China, which would reduce demand for raw materials, as the government tightens the money supply to prevent inflation.

But many analysts see commodity demand continuing strongly, as the country ploughs money into massive development projects and struggles to overcome power shortages which could prompt fuel imports and cut China's own output of industrial metals.

The main disappointment for commodity markets in the May trade data, issued on Friday by China's General Administration of Customs, was copper. Shipments to China, the world's biggest user of the metal, were even thinner than expected, at 254,738 tonnes of unwrought copper and semi-finished copper products.

Analysts say that was caused by buyers turning to stockpiles to meet demand and expect imports to revive in the second half of the year. However, the decline in May, when many had expected a modest increase, ups the ante for June.     "We expect to see a sharp rebound in June and traders will have had to be more aggressive bringing copper through customs. A 20 percent rebound from the current levels is possible," said Judy Zhu, commodity analyst at Standard Chartered Bank.     Analysts and traders estimate that bonded stocks of copper, imported in previous months but not assessed for value-added tax, fell from 550,000-700,000 tonnes in early April to 350,000-500,000 tonnes last week. High take-up of stocks would help explain why imports were so low, plugging a big hole in apparent demand.     Another consolation for copper bulls was the figure for imports of copper scrap, a cheaper alternative for smelters and fabricators, which rose 5.3 percent on the month to 400,000 tonnes, up 21.2 percent from May 2010.

IRON ORE SLOWING

A more serious threat to China's suppliers than the apparent lack of copper buying may be the slowing of iron ore imports, which hit 53.3 million tonnes, just 0.8 percent up from the shorter month of April.

That volume was 2.7 percent up from May 2010, although the total cost of iron ore imports rose by a third to $8.9 billion.

China's steel sector, which accounts for almost half of world steel output, normally slows in the second half of the year and faces twin headwinds in 2011: monetary tightening and power shortages.

Data from China Iron & Steel Association shows steel output may have peaked at a record of almost 2 million tonnes per day in mid-May, since it fell 3.5 percent in the latter part of the month.

At the same time, stockpiles of iron ore at China's ports soared to a record, signalling an increasingly sated market, and industry champion Baosteel said this week it would cut prices.

"I expect shipments to fall in June as steel mills have axed their buying and consumed more domestic ore to feed demand," said an iron ore trader in Shanghai.

CRUDE OIL COST AT RECORD $18 BILLION

While copper wilted and iron ore wobbled, crude oil imports held up despite high prices following the turmoil in Libya and topped 5 million barrels per day for the fifth month in a row.

The monthly import volume was flat at 21.55 million tonnes in May, although on a daily average basis that translated to a 3 percent slowdown, at 5.07 million barrels per day. The cost to China burst through $18 billion for the first month ever.

That's a 70 percent leap in oil spending compared to May 2010, while volumes rose 20.7 percent.

"There are signs that China's economic growth is moderating, but its oil appetite may not slow that much, because China is expanding its emergency oil reserves," said an analyst with a foreign consultancy in Beijing, who declined to be named due to company policy.

In coal, China imported 13.4 million tonnes in May, judging by Customs' figures for year-to-date imports of 56.88 million tonnes. That would put May imports 20.7 percent up from the 11.1 million tonnes imported in April. Net coal imports grew even faster, since coal exports fell to a four-year low.     "The rise of domestic prices and the emergency need from coal-fired power plants have discouraged exports. One of the policy responses to the ongoing power shortage is to increase coal inventory," ANZ analysts said in a research note.     The increase in May consolidated a resurgence in coal imports after a slow start to the year. Coal imports for June are poised to rise further and could top 16 million tonnes, according to some trade estimates, as domestic prices soared to a 2-1/2 year high and power plants boosted run rates to cope with peak summer demand that will stretch on until August.

Domestic thermal coal prices climbed for a 12th week to above $130 per tonne. (Additional reporting by Polly Yam in HONG KONG, Nick Trevethan and Rujun Shen in SINGAPORE, Fayen Wong in SHANGHAI and Jim Bai in BEIJING; Writing by Tom Miles; Editing by Michael Urquhart)

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