Why China’s Strong Commodity Imports Defy Weak Economic Data

By Tsvetana Paraskova of OilPrice.com

Despite continued weak economic performance, China’s imports of major commodities in the first two months of 2024 held strong and exceeded last year’s levels.

Imports of crude oil, LNG, coal, and iron ore were all higher at the start of the year compared to the same period of 2023, although China’s economic data still shows a weak recovery, problems in several key sectors, and low consumer confidence.

There’s a reason behind the robust commodity imports, and it’s not Chinese economic growth. Rather, it is the market dynamics for each major commodity, Reuters columnist Clyde Russell notes.

Strong Commodity Imports

Crude oil imports into China, the world’s top crude importer, increased to 11.73 million barrels per day (bpd) in February, higher than the 11.31 million bpd imports in January, per LSEG data cited by Russell.

China’s customs office doesn’t report separate data for January and February to avoid distortion due to the Lunar New Year holiday, which typically begins at the end of January or early February.

According to LSEG estimates, China imported 11.51 million bpd of crude for January and February on average, up by more than 1 million bpd compared to the official Chinese data for January-February crude oil imports last year.

Despite possible distortion due to the Lunar New Year holiday period, which this year was in February, a large part of the rise in crude imports was due to higher demand compared to January 2023, when China was reopening from the COVID lockdowns, and because of lower commodity prices at the time the orders were placed in the fourth quarter of 2023.

Oil prices declined in the last quarter of last year after hitting a 2023 high of over $95 per barrel in September.

Considering the time lag of around two months between crude purchases and nominations and the arrival of the crude in China, it could be concluded that Chinese refiners have continued to buy more oil when prices were falling.

In January 2024, China’s crude oil imports held up at a robust rate of 11.31 million bpd, per estimates from LSEG Oil Research. Low oil prices in November and December 2023 have been driving higher Chinese crude imports early this year.

China also allocated in January a massive batch of crude oil import quotas to refiners, raising the allowances from early last year by around 60% and allocating full-year quotas to some. The early allocation of a large volume of import allowances will help refiners better plan their crude purchases in 2024, according to analysts.

Despite weak manufacturing and the ongoing property crisis, crude oil imports are estimated to have held strong at much higher levels compared to the first two months of 2023.

That’s also because China took advantage of the slide in oil prices, which began in October, to ramp up its stockpiling of cheaper crude in December and January. 

In the liquefied natural gas market, China imported in February a record volume of LNG for the month, as buyers took advantage of plummeting spot prices in Asia amid ample inventories and tepid demand.  

Chinese LNG imports last month – the highest-ever for February – topped 5.5 million tons, rising by 15% compared to February last year, ship-tracking data compiled by Bloomberg showed last week.

In February 2024, Chinese LNG importers were on the lookout for cheaper supply of liquefied natural gas on the spot market as prices in North Asia halved from October levels and slid to a nearly three-year low by the middle of the month. 

Last week, the average LNG price for April delivery into north-east Asia was unchanged from the previous week, at $8.30 per million British thermal units (MMBtu), which was the lowest level since April 2021.

China’s coal imports were also robust in early 2024 amid high power demand and low hydropower output.

Despite the property sector crisis, Chinese imports of iron ore were also strong at the start of 2024.

Steel mills have increased inventories of iron ore in recent weeks, which could be in anticipation of authorities rolling out measures to boost the sector and the overall economy, Reuters’ Russell notes.

Underwhelming Economy

Chinese imports of major commodities defy the weak economic performance, which has plagued the world’s second-largest economy since the reopening from the Covid restrictions early last year.

Manufacturing activity remains in contraction territory, shrinking for a fifth consecutive month in February.

Consumer prices are falling, and deflationary pressure risks becoming an entrenched behavior of lower spending among consumers, some analysts warned last month.  

Despite China touting record travel during the Lunar New Year holiday in February, consumer spending was lower than pre-pandemic levels, according to CNN estimates, amid weak consumer confidence in a deflationary environment.

On Tuesday, China set a target of around 5% economic growth for 2024, which is in line with expectations. Premier Li Qiang told the National People’s Congress that China would be looking to “transform” the economic growth model and implement measures to reduce industrial overcapacity and defuse property sector and debt risks.

Restoring confidence will likely take some time, and the process will likely be uneven, Lynn Song, Chief Economist, Greater China, at ING said, commenting on China’s economic growth targets. The policies that will be announced in the coming weeks and months will play a large role in whether or not consumer and business sentiment will bottom out this year, the economist added.