China’s economic recovery appears to be on track, but is unevenly spread across sectors, which is likely to result in a similar pattern for its imports of major commodities.
A slew of data from the world’s second-biggest economy showed some encouraging signs of a recovery in industrial production, retail sales and fixed-asset investment.
Industrial output rose 2.4% in the first two months of 2023 from the same period last year, retail sales jumped 3.5%, while fixed-asset investment gained 5.5%.
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China publishes combined January and February data to smooth out distortions caused by the Lunar New Year holiday, which fell in January this year but was in February in 2022.
Also key for commodity demand was the 9.0% jump in infrastructure investment in the first two months, but this was somewhat offset by a 5.7% drop in property investment, although this was an improvement on the decline of 10% for 2022 as a whole.
Infrastructure and property construction are key drivers of demand for copper and steel, and its raw materials of iron ore and coking coal.
The rising spending on infrastructure and signs of less weakness in property investment are already showing up in China’s iron ore imports.
China takes about 70% of global seaborne iron ore volumes and its imports for March are estimated by Refinitiv at around 94 million tonnes, while commodity analysts Kpler have a higher forecast of 99.96 million.
This would put daily imports in a range between 3.03 million and 3.22 million tonnes, slightly below the official customs figure of 3.29 million for the first two months of 2023.
However, it’s worth noting that the January-February outcome was the strongest on a daily basis since September last year.
China’s steel output also rose in the first two months of 2023, gaining 5.6% from the same period last year to reach 168.7 million tonnes.
Iron ore imports and steel output tend to be leading indicators of commodity demand in China, the world’s largest importer of natural resources, as mills tend to ramp up production ahead of anticipated demand for building and manufacturing.
The iron ore imports for the first quarter and the steel output data for the January-February period do suggest increasing activity, but they aren’t so strong as to point to a huge rebound in China’s economy.
Rather, the data seems to be broadly supportive of a solid start to achieving China’s stated economic growth target of 5% for 2023.
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The modest recovery in China’s growth has yet to show up in some other major commodities, especially crude oil, which tends to be a lagging indicator given it takes several months from when cargoes are purchased to when they are delivered and processed by refineries.
Crude oil imports in the first two months of the year were 1.25% lower at 10.4 million barrels per day (bpd) than the same period in 2022, according to customs data.
March imports are expected at around 11.18 million bpd, according to Refinitiv Oil Research, which represents some acceleration from the official numbers, but hardly the massive lift in demand being forecast for the whole of 2023 by a range of analysts and organisations, including the International Energy Agency and the Organization of the Petroleum Exporting Countries.
It’s likely that China’s crude imports will accelerate from the second quarter onwards as the country continues to reopen after abandoning its strict zero-COVID policy.
But there are other factors to consider, such as whether Beijing will continue to provide refiners with quotas to export refined products, as these tend to boost crude imports to provide the feedstock for the refined fuel exports.
Price is also an important driver of China’s energy imports, with high prices tending to lead to lower crude imports as refiners use up some of the large inventories they have accumulated in recent years.
The impact of price can be seen in imports of liquefied natural gas (LNG), which dropped sharply in 2022 amid record high spot prices for the super-chilled fuel.
However, lower prices this year have tempted buyers back into the market, and China is on track to import 5.39 million tonnes of LNG in March, according to data compiled by commodity analysts Kpler.
This would be up from February’s 4.96 million tonnes and also above the 4.77 million from March last year.
Source: Reuters (Editing by Sonali Paul)