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Chinese Buyers Strangely Idle in Copper Market

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2023-04-14

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China’s confusing economic picture can best be seen from the nitty gritty of its commodity imports in March - iron ore, coal and oil were strong but copper, the traditional bellwether used by western analysts to measure the strength of the country’s economy, especially in manufacturing, fell sharply.

What’s interesting is that the higher volumes of coal, oil and LNG in March came off a slide in world prices, especially coal. Yet stagnant copper prices didn’t see a surge in imports.

What wasn’t reported on Thursday was the volume of coal, gas and oil imports from Russia in March and over the first quarter.

Iron ore prices remained well above $US110 a tonne in March and reached $US132 a tonne in mid-March thanks to the strong Chinese demand but copper prices were weak through most of last month and yet Chinese buyers didn't take advantage as they usually do.

Iron ore prices this week failed to rise from news of the cyclone that threatened the world’s biggest iron ore port, Port Hedland for two days. Singapore prices traded around $US116.30 (for 62% Fe fines delivered into northern China) and Chinese prices fell 1.47% on Thursday, to $US118.29 per tonne, the lowest since January.

Fears of further cuts to imports were said to have been the driver, but those fears have been around for months and didn’t stop iron ore imports reaching an all-time high in the March quarter.

And there’s explanations for the surge in oil imports - up more than 22% in the month when falling prices forced the OPEC+ group to cut its global production cap for the rest of 2023).

Many of those shipments were organised earlier in the year and late in 2022 as refineries started gearing up for the re-opening of the economy after two years of harsh Covid lockdowns, which slashed demand for key products like jet fuel.

Analysts say we should watch for another sharp rise in oil imports in April and May if Chinese buyers use March’s weakness to set up more shipments.

Coal imports jumped 30% because (according to analysts), Chinese importers returned to the Australian thermal coal market and also boosted purchases of coal from Indonesia.

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And Tuesday will test to this picture with the March month and quarterly economic and GDP data released. Watch closely the figures for production, investment and retail sales, along with growth.

Australian investors will be watching March monthly and quarterly production data for a host of products such as coal, cement, power, oil and especially crude steel.

That’s after China's iron ore imports surged 14% in the month of March and 10% in January-March to log a record for a first quarter.

First-quarter imports of the key steel-making commodity hit a massive 294.34 million tonnes. For March alone, imports grew 14.8% to 100.23 million tonnes, data from the General Administration of Customs showed on Thursday.

In a further sign that iron ore demand is beginning to bounce back, China's daily hot metal output grew to 2.43 million tonnes in final week to March 31, up nearly 4% from late February, data from the Mysteel consultancy showed.

Reuters said Australia and Brazil accounted for 86% of iron ore arrivals in China last month. Overall imports were also boosted by an 84% rise in iron ore from India to 2.68 million tonnes in March after the country scrapped an export tax last November.

China's exports of steel products jumped 59.7% to 7.89 million tonnes in March, the highest monthly total since April 2021, as domestic steel mills sought to benefit from higher overseas prices.

For the first quarter, steel exports climbed by 53.2% to 20.08 million tonnes. Higher Chinese exports of steel products are used to help maintain costs (it is sold at a marginal cost basis) and price differentials offshore always attract more products and help drive iron ore demand higher.

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China's appetite for crude oil also kicked higher in March, the Customs data showed, but that wasn’t quite the story.

Imports in March surged 22.5% from a year earlier to the highest for a single month in nearly three years as demand from huge state-owned refineries rose sharply as they moved to rebuild stocks.

Crude imports in March totalled 52.3 million tonnes, or 12.3 million barrels per day (bpd). This compares with 10.1 million bpd of crude imported in March last year.

Reuters said the boost in imports was in line with expectations of higher refinery runs and product inventory draws on rising demand following the lifting of COVID restrictions late last year.

Many refineries and traders were reported to have bought oil forward earlier in the year for March delivery which was the first month not affected by the aftershocks from Covid and the Lunar New Year holiday break.

Total crude imports for the first quarter stood at 136.6 million tonnes, up 6.7% increase over 127.9 million tonnes in the same period last year which was held down by the lower demand because of Covid restrictions on movement.

Kerosene consumption rose in March, as the country's aviation sector took off following the lifting of travel curbs. Some Chinese analysts say the rise in sales of new energy vehicles is starting to negatively impact sales volumes of petrol. NEVS now account for around 28-30% of monthly car sales in China.

China's imported 8.9 million tonnes of natural gas in March data showed, up 11.2% from 8.0 million tonnes a year ago. Total natural gas imports for the first quarter stood at 26.7 million tonnes, down 3.6% on last year.

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China's coal imports surged in March to their highest in any month in the past three years as power companies stocked up on expectations for a recovery in demand and curbs on Australian coal disappeared

The world's top coal consumer imported 41.17 million tonnes last month, the highest amount since January 2020, data from the General Administration of Customs showed on Thursday.

That compares to an average of 30.32 million tonnes per month in the January-February period, and was up 151% from March last year when Covid restrictions put a lid on power demands.

For the first quarter of 2023, China imported a total of 101.8 million tonnes of coal, nearly doubling from 2022’s low base

Reuters said that Australian coal imports were expected to have grown in March after Beijing removed restrictions on coal trade with Canberra.

Cheaper pricing has encouraged imports of Australian thermal coal. Reuters says that domestic thermal coal with energy content of 5,500 kilocalories (KC) costs 1,050 yuan ($US152.76) a tonne at the northern Chinese port of Qinhuangdao, while Australian coal of the same quality costs around $US120 a tonne on a free-on-board basis.

Utilities and traders also lifted purchases from Indonesia before the Muslim country entered the Ramadan festival in mid-March

As the trading update this week from Whitehaven Coal showed, its average received price in the march quarter will be around $A400 a tonne because of weakening world prices for its high quality (6,000KC) thermal coal.

The price of the 5,500 KC coal also fell despite the stepped-up Chinese purchases. There’s now an oversupply of coal in the Asian basin.

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Going against the grain was copper, traditionally seen by western analysts as a barometer of the health of China's economy, especially in manufacturing.

So what are we to make of the news that China's imports of copper metal and concentrates both fell in March 2022, as domestic metal production rose and world prices stagnated.

Comex copper futures started March above $US4.16 a pound, fell to a low of $US3.84 in the mid-month global bank crisis and then recovered to end the month at $US4.09 a pound.

Imports of unwrought copper and copper products totalled 408,174 tonnes in March, according to data from the General Administration of Customs.

The purchases, which included anode, refined, alloy and semi-finished copper products, was much lower than the 504,009 tonnes in March 2022.

Copper metal imports for the three months to March fell a large 12.6% to 1.3 million tonnes from the same quarter in 2022.

Imports of copper ore and concentrate stood at 2.02 million tonnes in March fell 7.3% from a year earlier, the customs data showed.

Reuters said actual consumption of copper in China has made a slow start in the re-opening.

Doubts about the strength of post-COVID factory recovery also arose from slower growth in manufacturing activity in March, amid weaker global demand and a property market downturn.

The yearly decline largely reflected shrinking inflows of refined copper.

"We estimate March import may be around 200,000 tonnes, down from 302,000 tonnes the same month last year and 228,000 tonnes in February," said Lynn Zhao, a commodity strategist at Macquarie.

Domestic production of refined copper jumped 14% on the year to 858,900 tonnes in March, a survey by state-backed research house Antaike showed.

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