Clyde Russell is a Reuters columnist. The views expressed are his own.
LAUNCESTON, Australia, May 8 (Reuters) – How long can strength in China’s commodity imports co-exist with weakness in other key indicators, such as manufacturing?
If you accept the argument that China can’t continue to import record, or near-record, levels of major commodities while experiencing slowing growth, then one of two outcomes becomes inevitable.
Either commodity imports start to moderate to align more closely with other economic data, such as the HSBC Purchasing Managers’ Index, which fell for a fourth straight month in April, or China’s growth shows evidence of re-accelerating.
So far this year, strength in commodity imports has tended be put down to either one-off factors, or demand unrelated to actual consumption, for example, buying iron ore in order to secure financing to use in unrelated investments.
If these factors are the reason behind the seeming disconnect between natural resource imports and the overall economy, then the most likely outcome will be for imports of crude oil, iron ore, copper, soybeans and other commodities to ease in coming months.
Crude oil imports jumped 22 percent in April from March to 27.88 million tonnes, equivalent to 6.78 million barrels per day (bpd), which exceeds the prior record high of 6.65 million bpd in January.
The strength in crude imports comes amid slowing oil demand, with a calculation of implied consumption coming out at 9.96 million bpd in the first quarter, a decline of 0.6 percent from the same period a year earlier.
April’s record oil imports also came amid maintenance at several refineries, which normally trims demand.
The most likely explanation is that China has been adding to commercial stockpiles, and the start up of two new refineries certainly supports this view.
However, the extent of the strength in crude imports suggests that strategic stockpiles are also being filled, although this cannot be known for certain as this information isn’t disclosed.
PRICE A FACTOR FOR IRON ORE, COPPER
Iron ore imports were the second highest on record in April at 83.89 million tonnes, and the first four months of the year has seen a jump of 21 percent from the same period in 2013.
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