China Wins From Commodity Slump as Drop Spurs Record Imports

January 14, 2015 06:09 AM
 
China Wins From Commodity Slump as Drop Spurs Record Imports

China is emerging a winner from the collapse in commodities prices to the lowest in 12 years as the world’s second-largest economy buys a record amount of raw materials.

 

Imports of crude, copper, iron ore and soybeans climbed to records in 2014 as prices tumbled, customs data showed yesterday. Copper plunged the most in almost six years today while oil traded near the lowest level since 2009 amid speculation that supplies of raw materials are outpacing demand and as a stronger dollar diminishes their allure.

China is seeking to benefit from the rout by boosting purchases and filling its stockpiles even as economic growth slows. The Bloomberg Commodity Index of 22 energy, agriculture and metal products slid to the lowest level since August 2002 today, after dropping 17 percent last year.

“China is taking advantage of an extensive slump in raw material prices to purchase from overseas, which is especially reflected in oil and iron ore,” Guo Chaohui, a Beijing-based analyst with China International Capital Corp., said by phone yesterday. “Potential stockpiling may have triggered a buying spree in products like copper and soybeans.”

Copper tumbled as much as 8.7 percent on the London Metal Exchange to $5,353.25 a metric ton, the lowest intraday price since July 2009. The metal was trading 6.2 percent lower at $5,498.75 a ton at 11:13 a.m. in Hong Kong.

The Bloomberg Commodity Index slid 1 percent to 100.3232 today. The measure tracks raw materials from London-traded Brent crude, the benchmark for more than half’s the world’s oil, to copper in New York and Kansas City wheat.

Oil Stockpiles

 

Brent fell 0.7 percent to $46.25 a barrel today, after touching the lowest level in almost six years yesterday. It is down 60 percent from a peak in June last year as the Organization of Petroleum Exporting Countries resists calls to trim output amid the highest U.S. production in more than three decades. U.S. benchmark West Texas Intermediate slid below $45 a barrel for the first time since April 2009 yesterday.

 

China’s overseas oil purchases increased 9.5 percent to 310 million metric tons last year, according to the data released yesterday. December purchases were at 30.4 million tons, also an all-time high. That’s about 7.19 million barrels a day.

China National United Oil Co., a unit of the country’s biggest energy company known as Chinaoil, bought 47 cargoes on a Singapore trading platform to be delivered last month, according to data from Platts, which operates the system. That’s the equivalent of 23.5 million barrels.

“Record cargoes bought by Chinaoil in October seemed to have been unloaded and are helping imports shoot to a record,” said Amy Sun, a Guangzhou-based analyst at ICIS-C1 Energy, a Shanghai-based commodities researcher. “Meanwhile, the government is taking advantage of low prices to stockpile both commercial and strategic oil.”

Major Avenue

 

China Petroleum & Chemical Corp. and China National Offshore Oil Corp. together may fill two storage projects in the nation’s second phase of building emergency stockpiles during the first half of this year.

 

“What you see across a lot of the commodities is that you have very strong supply growth globally and that China has been a major avenue where that supply is getting channeled,” said Ivan Szpakowski, an analyst at Citigroup Inc. in Hong Kong. “Some of the buying in China is definitely opportunistic.”

Iron ore imports totaled 932.5 million tons last year from 820.3 million tons in 2013, the customs data show. Shipments in December climbed 29 percent to 86.85 million tons from the month before. The steel-making ingredient collapsed 47 percent in 2014 as BHP Billiton Ltd., Rio Tinto Group and Vale SA raised low- cost production in Australia and Brazil, spurring a global glut.

Winter Purchases

 

Ore with 62 percent content delivered to Qingdao, China, lost 2.2 percent to $68.74 a dry ton yesterday, according to Metal Bulletin Ltd. The benchmark dropped to a five-year low of $66.84 on Dec. 23.

 

Some mines in China are closed over the winter months, boosting mills’ reliance on stockpiles and imports, and separate data yesterday showed a further drop in the reserves held at ports.

China’s imports or unwrought copper and products climbed 7.4 percent to a record 4.83 million tons in 2014, the data showed. About 1.6 million tons of new mine supply of the metal may come online in 2015, Bloomberg Intelligence said last month. The expected surplus is 522,000 tons, assuming a 4 percent growth rate, after an estimated 100,000-ton deficit in 2014, according to Bloomberg Intelligence.

Excess Supply

 

Soybean imports jumped 12.7 percent to 71.4 million tons last year, the customs data showed. March soybeans were at $10.0575 a bushel, down 23 percent from a year ago.

 

China’s gross domestic product climbed 7.4 percent last year, the slowest expansion since 1990, economists project.

“It’s not the case that underlying demand in China has been great and that’s led to them wanting to buy a huge amount more,” Citigroup’s Szpakowski said. “It’s more a reflection of excess supply, prices are lower.”

 

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