Were China’s commodity imports in July a continuation of the trend of robust growth, a pause from the recent strength, or early signs of a slowdown?
When numbers aren’t unequivocally pointing in the same direction it often becomes possible to interpret them in different ways.
Take the following three quotes from respected analysts in the wake of Tuesday’s July trade figures.
- “China’s imports of commodities for July came in better than expected, with the normal seasonal downturn seemingly delayed for another month.”
- “China’s July commodity import numbers were a mixed bag as year-on-year growth in energy commodity imports remained strong while iron ore dipped and copper remained steady.”
- “China’s commodity import volumes were generally weak in July. High stocks of many commodities and growing domestic production dampened demand for imports. What’s more, the prospect of cooling domestic demand points to further weakness ahead.”
There is nothing wrong with a diversity of views when it comes to analyzing the state of the market in the world’s biggest buyer of commodities, but it doesn’t help in offering a definitive picture.
The safest route is to acknowledge that July’s data was somewhat mixed, but this by itself isn’t enough to call an end to the positive story of China’s commodity demand so far this year.
Crude oil provides a good example of the mixed view, with imports in July coming in at 8.18 million barrels per day (bpd).
This was the lowest since January and down from 8.79 million bpd in June, seemingly a bearish outcome.
But imports are also 12 percent above the level of July last year and the growth rate in the first seven months of the year is a strong 13.6 percent.
The short-term driver for the lower crude imports in July is likely to have been lower refinery production and a drawdown in commercial inventories, which had risen to the highest level in nine months at the end of June.
It appears that Chinese refiners, particularly the smaller, independent operators, took advantage of lower prices to stock up on crude in the second quarter of 2017.
This implies that growth in imports in year-on-year terms may moderate in coming months, but doesn’t yet point to a reversal in the overall trend for rising imports.
For that to occur, China would have to scale back purchases for its strategic storage, refiners would have to curtail exports of refined products and domestic demand would have to weaken.
While these three scenarios are all possible, it’s unlikely that they are the base case of the majority of analysts.