Global commodity prices dip on slow China import demand

Unclear whether this is a temporary reaction.

China’s imports of most commodities, including metals and agricultural ones, fell in October after many months. This has been attributed to fear of the possible negative impact of various curbs imposed by the authorities to cool the economy and tame inflationary pressure. The government has spoken of tightening for a month and last week it raised the reserve requirement for banks.

Falling imports had its impact on global commodity prices, after a two-year high. Most commodities were down by 6-10 per cent in the past two weeks, although the trigger was fear of a rise in rates in China and later an increase in reserve requirements.

Since November 11, copper is down 5.8 per cent, aluminium by 7.4 per cent, lead by 14 per cent and crude oil by 6.4 per cent. Prices fell by another two to three per cent today, after North Korea fired artillery shells at a South Korean island, hitting a military base and strengthening risk-averse sentiment.

China remained a net importer of primary aluminium, though volumes fell by 60 per cent. China’s domestic aluminium production is still in a falling trend (after curbs imposed some months before). China’s apparent consumption of primary aluminium is estimated to have declined by five per cent over last year.

Refined copper imports fell by 30 per cent compared to September, to 168.3 kilotonnes (Kt), the lowest level since October 2009. Domestic refined production is also falling. China's refined copper consumption came in at just 550Kt in October, the lowest in a year.

Zinc imports fell by 24 per cent over the previous month. China turned into a net exporter of refined lead in October, for the first time since April. Imports more than halved from September levels, while exports jumped by 66 per cent over September. Nickel was an exception, as its imports were up 54 per cent due to a jump in consumption. Similarly, imports of corn, cotton, sugar and soybeans fell in October. However, Barclays’ commodities analyst indicated this could be a temporary phase. He said the fall in agri imports was due to price stabilisation measures by the Chinese government. It has also been releasing corn from state reserves in weekly auctions.

Despite reports of weaker domestic production, China's net cotton imports eased 52 per cent month-on-month and 20 per cent, year-on-year in October to 96.1Kt, the first time imports have fallen below 100Kt since March 2009, as prices went through the roof in international market.
 

LOSING SHEEN
Commodity	High date#	High	Nov 22, ‘10	% chg
Zinc ($/tonne)	26-Oct	2,556.50	2,133.00	-16.57
Lead ($/tonne)	11-Nov	2,593.50	2,226.50	-14.15
Nickel ($/tonne)	6-Oct	24,875.00	21,615.00	-13.11
Tin ($/tonne)	14-Oct	27,600.00	25,200.00	-8.70
Aluminium ($/tonne)	11-Nov	2,446.00	2,265.50	-7.38
Brent crude ($/bbl)	10-Nov	88.65	82.95	-6.43
Copper ($/tonne)*	11-Nov	8,925.00	8,405.50	-5.82
Gold ($/ounce)*	8-Nov	1,409.55	1,363.70	-3.25
Silver ($/ounce)*	22-Nov	27.87	27.35	-1.85
* As on Nov 23, Till 1700 hrs IST                                                               #For the year 2010 Compiled by BS Research Bureau                                                                Source: Bloomberg

For metals, too, the analyst said: “It may be a mistake to say that China is slowing, as the underlying trends in demand still look very strong. Far from pointing to a slowdown, what this data tends to suggest is that high prices are encouraging a phase of de-stocking and will give way to a renewed burst of even higher imports.”