China’s energy problems are manifested in divergent imports of raw materials: Russell

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LAUNCESTON – Chinese imports of major commodities in September showed a growing divergence between energy and metals, with coal and natural gas on the rise while copper and iron ore struggled.

Import data is beginning to reflect the general dynamics apparent in the world’s second-largest economy, where shortages of power generation and heating fuels have begun to weaken the ability to make energy-intensive products such as metals. refined.

The notable exception to the strength of energy imports is crude oil, whose September arrivals remained low amid high prices and the lack of import quotas available to the independent refining sector.

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Coal imports made headlines in September data, with arrivals of all grades reaching 32.88 million tonnes, the most since December’s 39.08 million, the second strongest month in the past 20. and a 76% jump from the same month in 2020.

China has been increasing coal imports in recent months as domestic production has struggled to meet growing demand for electricity, leading to power shortages and rationing in some provinces.

Much of China’s coal problems are self-inflicted, with mine closures for safety inspections contributing to lower-than-potential domestic production, and an unofficial ban on buying in Australia for political reasons that hurt imports.

The overall impact has been to drive both Chinese domestic prices and Asian spot sea coal to record levels.

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Domestic thermal coal futures on the Zhengzhou exchange thermal coal futures hit a record 1,640 yuan ($ 254.44) per ton on Wednesday, having risen nearly three times so far this year.

Australian Newcastle coal futures traded on ICE ended at $ 243.35 a tonne on Wednesday, just below the all-time high of $ 244.50 on October 1. 11 and 202% more than at the end of last year.

Chinese natural gas imports in September, both from pipelines and liquefied natural gas (LNG), totaled 10.62 million tonnes, a nine-month high and 22.6% above the volume for the same month in 2020.

Natural gas imports have risen 22.2% in the first nine months of the year as China continues to switch from industrial boilers and residential heating to the cleaner burning fuel of the most polluting coal.

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In turn, spot prices for LNG in Asia have risen alongside Chinese demand as utilities in countries like Japan and South Korea try to make sure they don’t run out of supplies, as they did over a winter. colder than usual in 2020. 21.

The weekly spot price of LNG it rose to a record $ 37 per million British thermal units (mmBtu) in the week through October. 8, having gained 560% from its 2021 low of $ 5.60 per mmBtu at the end of February.

It is worth noting that the relatively small volumes of LNG are actually traded at the spot price, as most supercool fuel is sold under long-term contracts tied to crude oil and when spot prices rise, only the most desperate buyers will remain on the market.

SOFT CRUDE, METALS

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Demand for crude oil from China has not matched the rise for coal and natural gas, and was quiet in September with imports of 9.99 million barrels per day (bpd), down from 10.49 million bpd in August and 11.8 million bpd in September.

During the first nine months of the year, crude oil imports have fallen 6.8% from the same period in 2020 to around 10.36 million bpd.

China is the world’s largest importer of crude oil and the slowdown in purchases reflects several factors, including the decision to deplete reserves of cheap oil purchased during the 2020 price collapse, travel restrictions due to the ongoing coronavirus pandemic, the lack of available import quotas and official concern about the sharp increase in prices driven by the production restrictions of the group of OPEC + exporters.

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China has also started selling crude from its strategic reserves in an attempt to moderate prices by limiting demand for imports, a strategy that still has a lot of influence in a global market more focused on bullish factors outside of Asia’s main importing region, where demand remains stagnant. .

China’s energy shortage is also beginning to be reflected in metal imports, with iron ore as an ingredient for steelmaking falling to 95.61 million tonnes in September, down 1.9% from the previous month. and 11.9% compared to the same month of 2020.

Restrictions on steel production, both from a pollution control and energy conservation point of view, are reducing demand for iron ore, a trend that is likely to persist into the coming winter.

Raw copper imports were up 3% in September from the previous month, rising to 406,000 tonnes, but this was a massive 43.8% compared to 722,000 last September, and was the second weakest month since August. 2019.

High world prices and moderate manufacturing growth have dampened demand for copper, and with energy constraints likely to continue in the coming months, demand for the industrial metal may remain weak.

(Edited by Lincoln Feast)