(Repeats item issued earlier. The opinions expressed here are
those of the author, a columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia Dec 8 China has thrown
the world's commodity producers and traders a massive party in
the last few months, as evidenced by robust figures for
November's imports of crude oil, iron ore and coal among others.
But as all partygoers know, sooner or later the festivities
come to an end, and the longer the party continues the more
severe the hangover tends to be.
China imports of iron ore jumped to the third highest on
record, with November's 91.98 million tonnes up 13.8 percent
from the previous month, taking the year-to-date gain to 9.2
percent compared with the same period in 2015.
Coal imports of 26.97 million tonnes were the most in 18
months, and were more than double the imports recorded in
November last year, according to preliminary Chinese customs
data. Coal imports have risen 22.7 percent in the first 11
months of 2016.
Imports of crude oil recovered strongly in November to 32.35
million tonnes, equivalent to about 7.87 million barrels per day
(bpd), which is above the year-to-date average of 7.53 million
Crude oil imports are about 14 percent higher so far this
year, which represents an increase of around 925,000 bpd, an
amount roughly equivalent to what the Netherlands consumes.
Imports of copper also surged, rising 31 percent to 380,000
tonnes in November from the previous month, the highest since
June and a recovery from October's near two-year low.
There is little doubt that these are robust numbers for
imports of major commodities and would certainly help justify
some of the strong gains in prices seen in recent weeks for many
But, like most economic data, trade numbers are a look in
the rearview mirror and tell little about the likely future path
Looking at coal it becomes clear that the balance of risks
is now tilted toward the downside for prices, as can be seen by
the recent retreat of benchmark Australian thermal coal at
Newcastle coal for January slipped to $78.15
a tonne on Wednesday, down almost 30 percent from its peak this
year in early November.
While Newcastle coal is still comfortably above the levels
that prevailed at the start of the year, it's clear the froth is
starting to come out of the market, a trend that may accelerate
in the first half of 2017.
Coal was pulled higher by rising Chinese imports, but this
was created by a political decision in Beijing to cut domestic
output rather than any underlying increase in demand.
The Chinese authorities have now reversed much of the cuts
to coal mining capacity and strong-armed miners to agree lower
prices with utilities for 2017.
While coal import volumes may well continue to be robust,
the price may have to decline in order for imports to remain
Certainly, shipping and port data compiled by Thomson
Reuters Supply Chain and Commodity Forecasts suggests December
will be another strong month for coal imports.
More than 15 million tonnes of coal has already arrived in
China in December or is on its way, a figure certain to rise as
more cargoes depart from ports in major suppliers Indonesia and
Australia in coming weeks.
PRICE RALLY LOSING STEAM
It's much the same story for iron ore, which has gained
strongly since the middle of the year, with spot cargoes for
China delivery MYSTL-RIIOI-IMP trading around $72.20 a tonne,
up about 60 percent since the recent low in mid-June.
Stronger Chinese steel output coupled with lower domestic
iron ore output and an emerging supply discipline from top
exporter Australia have combined to boost the price of the
But for iron ore to continue to rally, Chinese steel output
has to continue to surprise to the upside and supply must remain
While a more healthy outlook for infrastructure spending,
construction and manufacturing point to Chinese steel output at
least holding around current levels, there is more iron ore
supply coming to market from a major new mine in Brazil.
Higher prices will also tempt exporters that had been forced
from the market, such as Iran, to see if they can grab a slice
of the China import pie.
For crude oil, there are two main factors at play in the
outlook for China, namely how much will be added to strategic
storages and how much more will merely be re-exported as refined
Global benchmark Brent crude is up around 20 percent
since mid-November as the market first anticipated an OPEC-led
cut to output, and then reacted when such a reduction was
delivered at a meeting on Nov. 30.
Higher prices may curb Chinese buying for storage,
especially if they believe the market will fall again.
It's also worth noting that fuel exports hit a record high
of 4.85 million tonnes in November, up 18.3 percent on year.
This is partially because domestic demand growth has been
soft, but also because China's refiners have significant excess
capacity and Asian refining margins have made it profitable to
Overall, there are good reasons to believe that the Chinese
commodity party may be winding down, at least insofar as it has
contributed to rising prices.
Import volumes may well remain robust, but there is now a
question mark as to whether there will be enough demand growth
next year to provide momentum for an ongoing price rally.
(Editing by Richard Pullin)