China's appetite for commodities continued in October

China’s appetite for commodities continued in October, with imports positive across the energy, metals and agriculture segments. Expectations of easing in monetary policy have led to further improvement in its appetite.

Along with Chinese imports of commodities, funds’ investments in commodities worldwide have also been increasing. According to data compiled by Barclays Capital, “Total commodity assets under management (AUM) continued to pull ahead and experienced another large month-on-month increase, taking AUM to $412 billion, just $39 billion short of the all-time high reached in April this year.” It is interesting to note that commodity funds’ AUM had shrunk in September.

There were concerns that any slowing in Chinese demand could affect global commodities badly but October import data released by China’s Customs department confirm that imports were rising. China’s refined copper imports increased seven per cent in October over the previous month. On a yearly basis, it was up 74 per cent, the highest since April 2010. Refined nickel imports were also very strong and, at 24.6 kt, the highest since July 2009. Refined tin imports increased nine per cent month-on-month to four kt, the highest since April 2009. Aluminum and lead imports were lower in October

The Chinese currency is pegged to the dollar, which is strengthening; so, Chinese currency has appreciated. In the past three months, when currencies worldwide currencies fell, the Chinese one gained 1.4 per cent, making imports competitive. Silver demand in China is softening but the demand for platinum is rising. Crude oil consumption was robust in October, with petrol and diesel demand strong. However, there was a weakening in demand for petrochemicals due to strict lending constraints to small and medium units. Diesel imports continue to strengthen.

Chinese coal consumption in October did not hold the same positives, as it softened slightly from September’s record high. Still, it showed strong annual gains, as the domestic market continued to restock aggressively for the winter season, amidst expectations for heightened power shortage.

Gnanasekar Thiagarajan, director, Commtrendz Risk Management Services, said: “Apart from consumption, China also imports commodities for storage and any fall in commodities globally is seen as an opportunity to store that commodity by Chinese authorities. This strategy also provides support to the market whenever there is a sharp fall in prices.”

For the agricultural markets, data for October were broadly positive, with notable strength in corn imports. Overall, it does not signal any slackening in import demand.

China’s import reliance on corn has been is rising. Its imports were up 68 per cent from September and the annual import growth of 21 per cent was the highest since September 2010. The country has recently also stepped up its cotton imports. In early November, it bought 998,000 bales from the US. Palm oil, soybean and sugar imports were subdued.