COLUMN-China commodity surge more about stockpiling than consumption: Clyde Russell
--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Aug 8 (Reuters) - Will record imports of crude oil, iron ore and soybeans in July force a re-think of the consensus view that the China-led commodity boom is largely over, or is this just a one-month blip that can be dismissed?
Even the most bullish of analysts are likely to have been surprised by the strength in the July numbers, which stand in stark contrast to the last few months of gradually weakening economic indicators in the world's largest commodity consumer.
Ultimately there are two basic explanations for the increase in commodity imports. Either demand has risen, or is expected to rise in the next few months, or stockpiles are being built, or a combination of the two.
Different dynamics exist for different commodities, so it's worth looking at the breakdown.
Crude oil imports rose to 26.11 million tonnes in July, a 17.8 percent leap from June and at 6.15 million barrels per day (bpd), the highest on record.
The surge in July was enough to turn the year-to-date number positive, with imports for the first seven months now 1.4 percent higher than the same period in 2012, where as at the end of June they were 1.4 percent weaker.
Some gain in imports was expected after the weakness in the prior month, with the 5.39 million bpd in June the lowest in nine months, but the extent of the jump is likely to lead to the conclusion the extra crude is being put into storage.
Some crude may have been re-exported in the form of refined products, as customs data show net fuel imports fell 5.4 percent in July, mainly as a result of a 2 percent rise in exports to 2.03 million tonnes, or about 478,000 bpd.
But the rise in exports of refined products is nowhere near enough to justify the gain in crude imports, and domestic demand indicators such as fuel sales and refinery throughput have still to be released.
This means that until there is some indication that domestic demand is rising, the most likely explanation remains that crude was flowing into storage tanks.
China is expected to bring as much as 690,000 bpd of new refining capacity online in the second half of 2013, and commercial inventories for this will have to be established.
Assuming each new unit needs 21 days of inventory available, this may add a total of almost 14.5 million barrels to demand in the second half.
There is also a price factor that may have boosted imports in July, with Brent crude dropping in mid-June, just at the time cargoes for July delivery would have been booked.
Brent dropped from a closing price of $106.12 on June 19 to $100.91 on June 21, a decline of 4.9 percent that came against a wider backdrop of falling prices, with a downtrend in place since the year's closing high of $118.90 a barrel on Feb. 8.
Brent had risen to around $107.50 a barrel in Asian trade on Thursday.
A similar price effect may also have been at work for iron ore, with the Asian spot price <.IO62-CNI=SI> reaching its 2013 low of $110.40 a tonne on May 31, and only gaining to $110.90 by June 12. It subsequently rose to close Wednesday at $133.10.
Iron ore imports reached 73.14 million tonnes, up 17.4 percent from June and exceeding the previous record of 70.94 million tonnes reached in December last year.
Imports of the steelmaking ingredient are now 8 percent higher in the first seven months compared with the same period last year, defying reports of slowing growth in steel demand.
Steel output has continued rising, and the government's economic planning body expects it to reach a record 780 million tonnes in 2013, a gain of 9 percent.
This bodes well for ongoing iron ore imports, but doesn't explain what is happening to the steel being produced, given the softer demand outlook for the second half.
Once again, it's likely being stockpiled, which means if demand doesn't pick up on faster infrastructure investment, China's steel market may end up with an inventory hangover, but even if it does, this will take several months to materialise.
Perhaps the easiest to explain is the jump in soybean imports to a record 7.2 million tonnes, a gain of 3.9 percent from June and 22.7 percent higher than July last year.
Delays in shipments from Brazil because of port congestion in prior months meant a backlog of cargoes, many of which appeared to have arrived in July.
Overall, the surge in imports of some major commodities in July isn't necessarily a sign of renewed strength in the economy as it would take several months of stronger economic indicators to convince China has turned the corner on slower growth.
But it does serve as warning to bearish views that the commodity demand growth story is over, even if July's surge does appear largely an exercise in stockbuilding.
(Editing by Himani Sarkar)