(Repeats item with no changes to text. The opinions expressed here are those of the author, a columnist for Reuters.)
* GRAPHIC: China's economy, trade: tmsnrt.rs/2iO9Q6a
By Clyde Russell
LAUNCESTON, Australia, Dec 20 (Reuters) - China strode like a colossus over major commodity markets in 2017, as the world’s biggest buyer of natural resources made its presence felt on demand for coal, iron ore, crude oil and liquefied natural gas (LNG).
China’s influence on major commodities is likely to remain the single most important factor driving supply and demand in 2018, but that’s not to say next year will simply be a repeat of what happened this year.
Still, some trends established in 2017 will continue, or even accelerate, with LNG potentially the best example.
LNG imports surged 48 percent in the first 10 months of the year, as Beijing encouraged a switch from coal to the cleaner-burning fuel. Add in pipeline imports from central Asia, and China’s total natural gas imports were up 26.5 percent in the first 11 months of 2017.
Despite the surge in natural gas imports, and a 9.1 percent gain in domestic output in the first 11 months, it became clear that China still doesn’t have enough of the fuel available to meet its plans to largely phase out coal boilers being used in industries and for residential heating.
If history is a guide, however, it’s likely that by next winter China will have improved its natural gas infrastructure and will be able to consume more of the fuel.
Given the constraints on domestic gas output and the capacity limitations for pipeline imports, this suggests LNG imports will once again rise strongly in 2018, even if prices remain high.
Spot LNG in Asia LNG-AS reached $10.50 per million British thermal units in the week to Dec. 15, its highest in just over three years.
Up until China’s surge in demand, the LNG narrative had largely been one of how the flood of supply in the next few years would overwhelm the market and drive prices lower.
That story line isn’t as compelling as it used to be, given China’s appetite for LNG and stronger-than-expected demand from other emerging consumers in Southeast Asia.
Nonetheless, 2018 is still likely to be a year where LNG supply will exceed demand, especially during periods of weaker consumption in the northern spring and autumn.
China’s increasing use of natural gas should have been negative for the country’s coal imports, but this hasn’t proven to be the case so far.
Coal imports gained 8.5 percent in the first 11 months of 2017 from the same period a year earlier, even though the rate of growth has started to moderate in recent months.
Domestic output restrictions on coal led to higher prices for local supplies and kept the landed price of thermal coal imports for power generation competitive during the year.
China has now boosted domestic production, meaning imports may find the going tougher in 2018, but there is little reason to expect either a sharp decline or increase in thermal coal imports next year.
Coking coal used in steel-making is likely to have a solid year in 2018, given expectations that China’s steel industry is set to increase production to around 832 million tonnes, up modestly from around an expected 830 million tonnes this year.
In the first 11 months of 2017, China’s crude steel output was 764.8 million tonnes, an increase of 5.7 percent.
A modest increase in steel production would suggest a steady year in 2018 for iron ore imports, but it’s also possible these could show solid growth as steel mills switch to higher grade imported ore to lower the amount of coal used in blast furnaces.
Iron ore imports were up 6 percent in the January to November period to 991 million tonnes.
It’s likely that iron ore markets will see an increasing quality premium for higher-grade ore, which will boost the fortunes of some producers, but hurt others, such as those in India, who mainly export lower-grade ore.
Copper is one major commodity where China’s influence appears to have been muted this year, with imports of unwrought copper down 5 percent in the first 11 months to 4.24 million tonnes.
Despite this slump, benchmark London copper prices have climbed 25 percent this year, suggesting supply outages and demand elsewhere have been more important than China.
Supply issues may well dominate the copper story next year, but China may also boost its consumption on stronger industrial output and the rise of copper-intensive electric vehicles.
While crude oil headlines were dominated by the ongoing efforts of the Organization of the Petroleum Exporting Countries (OPEC) and its allies to limit supply, the demand story was once again dominated by China.
The interplay between OPEC and the producers outside the deal, such as U.S. shale drillers, will likely once again form the major story in crude in 2018.
But it’s worth noting that China’s crude oil imports were about 8.44 million barrels per day (bpd) in the first 11 months of the year, up about 950,000 bpd on the same period last year.
This makes China the major contributor to demand growth. Thus, what happens to Chinese import demand is going to play a role in how the global supply-demand balance turns out in 2018.
This year, crude imports were driven up by China’s ongoing filling of its strategic storages, demand from smaller non-state refiners and by increased exports of refined products.
All three of these dynamics are still at play, but it would be surprising if the 12 percent gain in China’s imports in the first 11 months of the year is repeated.
A return to single digit growth is more likely.
Editing by Tom Hogue