It’s turning out to be a good week so far for China’s economy, with the outlook brightening amid pledges of new stimulus measures and commodity imports putting up a strong showing in November.
Beijing’s plans to boost “unconventional” counter-cyclical fiscal policies and loosen monetary policy in 2025 saw equities surge on Tuesday, with the benchmark CSI300 index .CSI300 jumping 3.2% at the open, as government bonds also rallied.
While the announcement in official media of added monetary stimulus boosted sentiment, there was support from the strong showing of imports of major commodities in November.
Natural resources, of which China is the world’s biggest buyer, are a strong indicator of the health of the world’s second-largest economy given its role in turning commodities into manufactured goods for export and for domestic consumption in key sectors such as construction.
China’s imports of crude oil rose to 11.81 million barrels per day (bpd) in November, up 14.3% from the same month in 2023 and the strongest month since August last year.
It was also the first month in seven that crude imports rose from the same month in 2023.
However, the strength in November was nowhere near enough to wipe out earlier weakness, with imports for the first 11 months down 2.1% on a barrels per day basis.
This makes it likely that 2024 as a whole will see declining crude arrivals.
The question for oil markets is whether November’s increase in oil imports is the start of a stronger trend, or whether it was largely driven by a combination of lower prices and refiners using up import quotas before the end of the year.
November-arriving cargoes would have been arranged around the time that global oil prices were hitting the lowest so far in 2024, with Brent futures LCOc1 dropping to as low as $69.19 a barrel on Sept. 10.
Since that low, prices have recovered and Brent was trading around $71.78 in Asia on Tuesday.
PRICE SUPPORT
A price argument can also be made for iron ore, where imports dipped slightly in November to 101.86 million metric tons, down 1.9% from October’s 103.84 million and also below the 102.74 million from November 2023.
However, imports of the key steel raw material have held above 100 million tons every month since July and are also up 4.3% in the first 11 months of the year compared to the same period in 2023.
The run of strong imports since July came after iron ore prices on the Singapore Exchange SZZFc1 fell sharply from a 2024 peak of $143.60 a ton on Jan. 3 to a low of $91.10 on Sept. 10.
They have since recovered to end at $105.69 a ton on Monday, but these price levels are probably viewed as reasonable by Chinese steel mills, helping support imports at robust levels.
China’s imports of unwrought copper were also strong in November, coming in at a one-year high of 528,000 tons, up 4.3% from October.
Similar to crude and iron ore, copper prices were soft during the time November cargoes would have been arranged, with benchmark contracts in London CMCU3 dropping from the 2024 peak of $11,104.50 a ton on May 20 to a low of $8,716 on Aug. 8.
Since then copper has moved in a fairly narrow range, and was at $9,205 a ton in Asian trade on Tuesday.
Another major commodity performing strongly in China is coal, with November imports of 54.98 million tons being 26% higher than for the same month last year, and also up from October’s 46.25 million.
For the first 11 months of the year, China’s coal imports jumped 14.8% to 490.03 million tons, which means that 2024 will see a record high as this already exceeds the previous peak of 474.42 million tons in 2023.
Higher demand for coal-fired power given both strong electricity demand and declining hydropower output has driven China’s appetite for imports.
Seaborne coal prices have also been trending lower, given soft demand elsewhere in Asia and the need to compete with lower domestic prices in China.
The overall picture for China’s commodity imports is that they are resilient, with the weak spot being crude oil, although it showed signs of recovery in November.
However, it’s worth noting that lower prices have no doubt contributed to the strength in China’s demand for commodities, and if prices do rally as the Chinese and global economic outlook improves, it may moderate future gains in volumes.
Source: Reuters (Editing by Kate Mayberry)
