LAUNCESTON, Australia (Reuters) - China’s imports of crude oil and copper surged to records in June, while iron ore hit the highest in 33 months, but the factors that drove the surge are already fading into history.
There is little doubt the June trade data released on Tuesday was robust and will serve to confirm the prevailing market view that China is in the midst of a V-shaped economic recovery from the novel coronavirus pandemic.
But there is always a risk of reading too much into the data, especially when a variety of likely once-off factors helped drive the record imports.
Crude oil imports in June leapt to 53.18 million tonnes, equivalent to 12.9 million barrels per day (bpd), up 34% from the same month in 2019 and easily eclipsing the previous record high of 11.3 million bpd in May.
The import surge is the result of a price war that broke out in March between Saudi Arabia and Russia over whether to extend output restrictions by the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+.
For a brief period there was no agreement, causing crude oil prices to crater, a situation made worse by the rapid, simultaneous spread of the coronavirus around the globe.
Beijing - buying for the country’s strategic petroleum reserves (SPR) - and Chinese refiners took advantage of the collapse in oil prices to 21-year lows to snap up volumes well in excess of actual demand for consumption.
These cargoes started arriving in May and will likely continue through July, but the bulk of arrivals were in June, hence the record imports.
It’s been reported that coastal storage tanks are nearly full and ports remain congested as China struggles to offload and store all the crude it purchased.
The glut, coupled with the recovery in prices after OPEC+ agreed to deepen and extend output cuts, will likely curb China’s oil imports from August onwards.
It’s worth noting that China’s exports of refined fuels have been trending lower, with June at 3.87 million tonnes, down from May’s 3.98 million and April’s 8 million.
This implies China’s refiners are finding it harder to get customers as much of Asia and the rest of the world struggle to contain the coronavirus pandemic and restart stalled economies.
If Chinese refiners cannot find enough overseas buyers for refined products excess to local demand, it may result in them trimming crude processing in the second half of 2020.
China’s imports of unwrought copper last month ballooned to 656,483 tonnes, a record high and up from 436,030 tonnes in May and 50% above the 326,000 tonnes in June last year.
Similar to crude oil, though, the robust copper imports were largely a reflection of factors that have already faded from view, mainly cheap international prices for the metal that opened an arbitrage window to higher prices in Shanghai.
This rewarded traders who imported copper rather than buying the refined metal from domestic refiners.
Further proof of this dynamic is that imports of ores and concentrates were 1.59 million tonnes in June, down almost 6% from May’s 1.69 million.
The recovery of copper prices in London in recent weeks have eroded the appeal of buying on the international market for Chinese traders, meaning imports may stabilise in coming months.
While not quite a record, iron ore imports rose to 101.68 million tonnes, the most since October 2017, up 17% from May and 35% from June last year.
For iron ore, the story is more nuanced, with strong demand from Chinese steel mills meeting worries over supply from number two exporter Brazil, one of the countries worst affected by the coronavirus pandemic.
While the situation in Brazil remains uncertain, it’s likely Chinese steel mills will continue to stock up on iron ore, just in case there is a disruption.
This may ultimately result in a pull forward in imports, especially if Brazil does manage to maintain exports despite its coronavirus woes.
Overall, China’s exceptionally strong imports of crude oil, copper and iron ore amount to little more than a history lesson.
Whether the strength continues beyond July will depend on China maintaining its economic recovery, how the rest of the world shapes up, and whether Beijing’s geopolitical tensions with Washington come to the fore once more.
The opinions expressed here are those of the author, a columnist for Reuters.
Editing by Tom Hogue
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