China's commodity imports skyrocket

Chinese imports of copper and iron ore were very strong in January, with coal imports also exceeding previous highs.  All these commodities saw gains in inventories as a result. The key to whether this erodes prices will be how consumption ramps in the seasonally stronger period of the next few months.  This is uncertain particularly in the context of monetary tightening.

Refined and unwrought copper imports were exceptionally high in January, just eclipsing levels seen at the end of 2011.

The signals for further refined imports have weakened a bit, with the arbitrage to LME prices not obviously open and premiums weakening a bit, albeit to still high levels.

It also seems likely that bonded warehouse stocks have increased again along with SHFE stocks.  This would be the 5th month they have risen.

Copper concentrate imports have also be maintained at the strong levels seen in December and posted another 30%YoY+ gain.

There are reports of rising concentrate inventories in China, partly due to the lack of scrap to use in the smelting mix.

Scrap weakness is in part due to bad manufacturing in the rest of the world in 2013, but that is now turning around.  So perhaps an improvement in ex-China activity will help to unlock some of the concentrate build up at smelters.

Iron ore imports were incredibly strong at a reported 86.7mt, far and away the strongest on record.

This strength makes more sense when averaging it with the December data, which was weaker even though major exporters ramped output into the end of year.  Even still, its clear that seaborne supply is incredibly strong.

Very strong seaborne supply has lead to a replenishment of iron ore stocks, which at ports is now at comfortable levels in terms of today's production levels and likely peak levels seen in May.

An end to stocking and ongoing strong supply seems likely to skew the risk to iron ore prices to the downside from the current level of $121/t.

Total Chinese coal imports were also at very strong levels, matching the usually very strong December numbers.

But strong imports here are not a sign of strength in demand, but rather a sign of supply push into a Chinese market which has been weakening.  With stocks high and coal burn rates sagging, the risks to Chinese and seaborne market prices continues to be to the downside.

Its interesting that even though Chinese imports of coal and iron ore are very strong, bulk freight rates are very weak.

This speaks to the degree of supply push in these markets rather than demand providing tension for raw material and freight prices.

Finally, exports were much stronger than expected at 10.6%YoY. Actually exports may be stronger given we are lapping last January, which spiked due to false invoicing for hot money flows.

Chinese exports should be strengthening given the improvement in OECD export markets, although Chinese exporters seemed to have lacked the traction they used to have given a strengthening RMB.

The picture is confused by this false invoicing problem seen most clearly at the start of 2013. Nevertheless, the healthy export data are welcome given this has been a slow part of the Chinese economy in the past few months.