By Clyde Russell
LAUNCESTON, Australia, (Reuters.com) – The opinions herein are the views of the author. He is a columnist with Reuters.
China’s September imports of key commodities showed a growing divergence in energy and metals. Coal and iron ore soared, while coal and steel prices remained steady.
Import data starting to reflect the general dynamic of the second-largest economy in the world, where shortages are affecting the ability to manufacture energy-intensive products.
The only exception is the strong strength of energy imports. September arrivals remained soft due to high prices and insufficient import quotas available for independent refining.
In September, coal imports were headline-grabbing. They reached 32.88million tonnes in total, which was more than December’s 39.08million. This month also saw the 2nd-strongest month in 20 years and an increase of 76% compared to 2020.
China has been increasing its imports of coal in recent months, as the country’s domestic production has not kept up with growing demand for electricity. The result has been shortages and power rationing across some provinces.
Many of China’s problems with coal are their own fault. Mine closures due to safety inspections contribute to lower than expected domestic production. Imports suffer from an unofficial ban on Australia buying for political reasons.
Overall, the impact was to push both Chinese spot and Asian seaborne coal prices to new records.
On Wednesday, domestic thermal coal futures at Zhengzhou exchange thermal co futures hit a new record high of 1,640yuan ($254.44) a tonne. It has risen almost threefold in the past year.
On Wednesday, the Australian Newcastle coal futures exchanged on ICE. (NYSE:). The price was $243.35 per tonne. It is just under the Oct. 11 record of $244.50 and up by 202% since the beginning of the year.
China’s September natural gas imports from China, via pipelines or as LNG, totalled 10.62 millions tonnes. This is a nine-month record and 22.6% higher than that of the October 2020 volume.
As China switches to natural gas for its domestic heating and industrial boilers, imports of natural gas have increased 22.2% over the past nine months.
The Asian spot LNG price has risen in tandem with Chinese demand. This is because utilities from countries like Japan and South Korea are trying to keep supplies flowing, just as they were during the winter that was colder than normal over 2020-21.
In the week ending Oct. 8, the weekly spot LNG price reached a new record high at $37 per million British thermo units (mmBtu). This is a 5600% gain from its February low of $5.60/mmBtu (2021).
It is important to note that LNG only trades at the spot rate in relatively low volumes. The bulk of LNG sold under long-term crude-linked contracts, and spot prices can surge so buyers with the greatest need will not be able to buy the fuel.
SOFT CRUDE and METALS
China has not seen a surge in crude oil demand, and its imports have remained muted. September saw imports of 9.99 billion barrels per daily (bpd), compared to August’s 10.49million bpd and September’s 11.8 million.
Crude oil imports dropped 6.8% in the first nine months of 2019 compared to the same time last year. They now average 10.36 millions barrels per day.
China is the largest importer of crude oil in the world. The slowing down of Chinese purchases is due to a variety of factors including: the use of stockpiles of low-cost oil purchased during the 2020 price collapse, coronavirus travel restrictions, the absence of import quotas, and concern over China’s strong rise in prices triggered by export curbs from the OPEC+ group.
China also began selling crude oil from its strategic reserves to try to lower prices and limit import demand. This strategy is yet to exert much influence in a market that’s more focused on bullish indicators than the region where most of Asia’s demand continues to stagnate.
China’s energy scarcity is beginning to manifest itself in metal imports. In September, steel-making ingredient, iron ore, fell 1.9% from the preceding month and 11.9% to the same month in 2020.
Both from energy conservation and pollution control perspectives, restrictions on steel output are reducing demand for iron ore. This trend is likely to continue into the winter.
The September imports of unwrought copper saw an impressive 3% rise from August to reach 406,000 tonnes. But this was still down 43.8% from September 2018’s 722,000. September was also the worst month since August 2019.
Due to low demand and high global prices, as well as a slowing manufacturing growth, copper demand may be softening.