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Depending on your viewpoint, China’s imports of major commodities in April were either a sign of the ongoing strength as the world’s second-largest economy continues its post-pandemic recovery - or early evidence of moderating demand.

It all comes down to what basis of comparison is selected: the April figures look soft when compared with March, but solid when compared to April 2020, and resilient when looking at the first four months of this year versus the same period last year.

Crude oil imports illustrate the dilemma of trying to assess the true strength, or otherwise, of China’s commodities demand.

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April imports were 40.36 million tonnes, equivalent to about 9.82 million barrels per day (bpd), according to customs figures released on May 7.

This was down from about 11.7 million bpd in March, representing a decline of 16% that makes the April number look quite weak.

However, the April number was almost exactly the same as the 9.84 million bpd from the same month in 2020. And the first four months of 2021 has seen China’s oil imports gain 7.2% over the same period last year.

The question is how best can the numbers be reconciled? And another follows on - what is the importance of temporary factors in driving the month-by-month outcomes?

Perhaps a more accurate way of looking at the April crude oil imports numbers is to lengthen the period of time being used for the comparison.

On this basis, the April outcome on a barrels per day basis was the weakest since June 2019, barring an unusual slump in December 2020.

That December drop happened at the tail end of China’s run of record-breaking crude imports in the second half of 2020, a period when refiners gorged on cheap oil caused by the hit to global demand from the coronavirus pandemic, and a brief price war between top exporters Saudi Arabia and Russia.

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Another way of looking at China’s crude oil imports is to look at what refineries are processing.

So far this year, China’s refineries have processed about 14.1 million bpd, a figure likely to rise by the end of 2021 as new units are commissioned.

If domestic crude production is assumed to be largely steady around 4 million bpd, this means that China’s imports will have to average just above 10 million bpd in order to keep its refineries running at current rates.

In other words, imports below 10 million bpd - like April’s - could be seen to be a weak outcome, and those in excess of 11 million bpd would imply that China is adding to stockpiles.

Whether China continues to build stockpiles in the light of higher crude oil prices is an X-factor for crude markets.

In 2020, it’s estimated that China added about 1.29 million bpd to commercial and strategic inventories, based on calculating the difference between refinery throughput and the total volume of crude available from imports and domestic output.

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COPPER SOFT, IRON ORE SUPPLY

As for metals, that sector has been running red-hot with both iron ore and copper reaching record highs, amid a prevailing market narrative of China-led demand and a recovery from the pandemic in the rest of the world.

However, April’s import figures may have dented that narrative slightly - China’s imports of unwrought copper dropped 11.8% to 480,000 tonnes from March’s 550,000 tonnes.

Similar to oil, the April figure was in line with the same month in 2020. But year-on-year figures for the next few months are likely to be distorted by the impact of the pandemic, which led to lower imports in the first half of the year followed by a strong rebound.

With unwrought copper imports, perhaps a better picture is shown by the fact that they have declined in seven of the last eight months, with only a strong gain in March breaking the trend to lower imports.

This is hardly a picture of strength. While copper’s story outside of China may well be bullish enough to support the current rally, it would be hard to justify based on China’s import demand alone.

Iron ore is an interesting case. China’s imports dropped to 98.57 million tonnes in April, down from March’s 102.1 million.

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However, the most likely explanation for April’s lower imports was supply constraints, especially in light of disruptions early in the month at ports in top exporter Australia as a cyclone hit the northwest coast.

The spot price of benchmark 62% iron ore for delivery to north China, as assessed by commodity price reporting agency Argus, has been rallying strongly from mid-March onwards and closed on May 7 at an all-time high of $212 a tonne.

It seems apparent that China, which buys about 70% of global seaborne iron ore, is indeed driving the price - and currently struggling to source enough of the feedstock for its vast steel industry.

Overall, the April commodity import numbers are more mixed than they may first appear, with signs of a loss of momentum in crude oil and copper, while iron ore appears largely a supply issue currently.

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