COLUMN-Where's the aberration in China commodity imports?: Clyde Russell

Friday, 8 Nov 2013 | 1:40 AM ET

--Clyde Russell is a Reuters market analyst. The views expressed are his own.--

By Clyde Russell

LAUNCESTON, Australia, Nov 8 (Reuters) - It was always likely that China's imports of major commodities would retreat from September's elevated levels, but is the October pullback an aberration or is it enough to temper any bullish views?

Crude oil imports slumped to the lowest in 13 months at 4.81 million barrels per day (bpd), a staggering 23 percent drop from September's record 6.25 million bpd.

Iron ore imports also dropped from September's record 74.58 million tonnes, declining 9 percent to 67.83 million tonnes in October.

Copper imports fell 11.4 percent from September's 18-month high to 406,708 tonnes, while soybean imports fell by a similar magnitude of 11 percent to 4.19 million tonnes.

China is the world's largest buyer of iron ore, copper and soybeans and number two behind the United States in crude oil, and such dramatic declines in imports would normally set alarm bells ringing, especially since they stand in contrast to the more upbeat overall trade data.

Export growth rebounded in October, rising 5.6 percent from the year-earlier month and beating the consensus forecast for a 3.2 percent rise.

Imports also gained, rising 7.6 percent, but this was below the market forecast for an 8.5 percent increase.

What the overall trade figures show is that China's export-orientated economy is recovering from a mid-year slowdown and is benefiting from the modest recovery in the United States and early signs of the same in Europe.

Does this mean that the October commodity import slump can be written off as an aberration?

There are some good reasons to believe that October's numbers were influenced by one-off factors, chief among them the Golden Week holidays at the start of the month.

This likely had the effect of pulling cargoes forward into September, thus making that month look stronger than it actually was, while at the same time making October appear weaker.

Taking the two months together gives average crude imports of 5.53 million bpd.

However, this is still lower than the 5.62 million bpd imports averaged over the first eight months of the year, implying that there has been a slowing of crude demand in the past two months.

A further factor that is likely to have lowered oil import demand in October was the maintenance shutdown of refineries with a combined 640,000 bpd capacity around the middle of the month, as well as the earlier building up of inventories.

But even taking these one-off factors together, it's still apparent that total oil demand in China is growing modestly and may struggle to reach the 10.14 million bpd forecast by the International Energy Agency for 2013.

There is less immediate reason to be concerned about iron ore, as the October imports are still the fifth-highest this year, which is a strong performance given that three of the strongest months on record were July, August and September.

Adding September to October gives an average for the two months of 71.2 million tonnes, which is still well ahead of the 66.9 million for the first 10 months of the year.

The problem for iron ore is that steel production appears to be moderating amid slowing demand growth and efforts to curb output in order to lower pollution.

For copper, the factor influencing imports in October besides the holidays was the lack of arbitrage opportunities between domestic and international prices, which cut interest in spot trading.

Overall, the commodity import figures fit with the more general narrative of Chinese economic growth holding around the government's 7-7.5 percent target.

However, September's strength in commodity imports was just as much an aberration as October's weakness, with the average of the two months showing the more realistic picture of modest demand growth.

(Editing by Muralikumar Anantharaman)