The Hindu Business Line : China commodity demand continues to grow

Mumbai April 2 Contrary to pronouncements of doomsday theorists, Chinese economy continues to march on. No sign of slowdown, especially in commodity consumption, is visible. China continues to be the mover and shaker of the global commodity markets.

Therefore, as the rest of the world slows, generally strong Chinese demand data for January-February covering a host of commodities is a welcome relief. The production and trade data for the first two months of the current year released by China recently show how supplies are evolving and demand shaping.

Aluminium Production

On production, the data are astonishing in several respects. Some of the data on production include, massive growth in Chinese aluminium (1.894 million tonnes or 40.7 per cent) and alumina production (2.834 mt or 59.9 per cent), with aluminium output at an annualised rate of 12.2 mt in February and alumina at a rate of 19 mt. Aluminium semis production rose by 46.1 per cent.

Zinc output

Very strong growth in refined zinc production (+29.7 per cent), but an apparent fall in mine output. Huge nickel production growth (+62.3 per cent) when nickel pig iron production is included.

A 0.9 per cent fall in refined copper production, providing another reason why refined imports have been so strong.

Calculations of apparent demand show strong and accelerating growth in most commodities in January-February. This reflects a recovery in construction activity and an end to destocking, according to Macquarie Research.

Aluminium Demand

There has been a massive rise in apparent demand for aluminium and nickel, both above 60 per cent year-on-year. In case of nickel it is understandable, given the massive growth in Chinese stainless steel production.

In case of aluminium, the massive (40.7 per cent year-on-year) growth in semis production is part of the explanation, but there also appears to be some aluminium stocking.

The growth in semis reflects a desire to avoid the 15 per cent export duty of primary aluminium and move to exports of semis instead, reasoned Macquarie.

Zinc, tin

The exceptions are zinc and tin, which had remarkably weak demand and can be attributed to heavy destocking in these commodities in response to extremely strong LME prices.

The net trade figures show some astounding changes year-on-year with still massive growth in raw materials such as bauxite and nickel ore and concentrate.

The strong recovery in refined copper imports is notable, as is the strong rise in finished nickel imports. The collapse in stainless steel net imports is a concern for global stainless steel market. There already are signs of price weakness emerging in Europe as a consequence.

Coal

The move of China to being a net importer of coal in January-February is also notable and bullish for coal, as is the ongoing massive growth in iron ore imports, experts noted.

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