Is China really slowing down? Import strength waning says Barclays

Commodity Online
Markets are concerned that with business confidence low, growth faltering and export demand poor, weakness in China?s commodity imports will become more pervasive, especially with high inventories overhanging sectors such as copper and steel.

The latest data show that after the broad-based strength that characterised China?s commodity import demand for much of this year, a more mixed picture is emerging, with distinct signs of weakness in some areas but still some pockets of strength.

One of the weakest sectors currently is oil. Crude oil imports fell to their lowest level in almost two years in August, and consumption growth was flat y/y. Nevertheless, gasoline continues to look strong, with demand expanding by 8.5% y/y and, at 2m bpd, was only a whisker away from its all-time high. Whilst a return to last year?s Q4 average growth rates for oil of 13.5% looks unlikely, we expect an improvement in Chinese consumption over the rest of this year as refinery maintenance comes to an end, especially with margins now stronger thanks to increases in retail fuel prices.

In agriculture, imports pulled back from July?s peaks in corn, soybeans, palm and soy oil, but this likely reflects a degree of price sensitivity rather than any slowdown in underlying demand. To try and ease the effect of high prices on local consumers, China has been auctioning stocks of soybeans, and we think that this will keep a lid on import requirements for a while yet. China?s sugar imports hit a record high, but we do not expect strength to continue since the 2012-13 crop looks good due to favourable
weather and increased plantings.

The strongest sector for base metal imports in August was lead, which rose 51% y/y, supported by very strong demand from lead acid and e-bike battery makers. Refined copper imports remained in their recent range of about 250kt, with y/y growth continuing to contract, and we think that trend will continue.

Finally, in precious metals, platinum was the stand-out, rising 43% y/y, driven by falling platinum jewellery stocks. However, higher prices toward the end of August mean September?s imports are likely to be lower. Palladium imports were flat on last month?s levels, but we expect an improvement due to a pick up in car sales and output that we think will persist into Q4.

Source: http://www.commodityonline.com/news/is-china-really-slowing-down-import-strength-waning-says-barclays-50481-3-50482.html

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