LONDON: China's slowing pace of economic activity has cast a long shadow over markets in recent months, not least the industrial metals because of their leverage to the China growth story.
Yet imports of most base metals boomed in the first half of this year, attesting to the country's undiminished pull on units from the rest of the world.
And so, for the most part, did imports of metallic raw materials, albeit with some major shifts in dynamics occasioned by the Indonesian government's clampdown on exports of unprocessed minerals such as nickel ore and bauxite.
Imports of aluminum, tin, copper and zinc all showed strong year-on-year growth in the first half of 2012.
Underpinning that growth was a mixture of simple arbitrage flows, manufacturing demand and, particularly in the case of copper, investment demand.
And some of the headline jumps in imports flattered to deceive.
Net imports of primary aluminum, for example, rose the most, 198 percent year-on-year. But in volume terms, that translated into only 157,000 tons additional inflow for a first-half tally of 236,000 tons.
In the context of a 40-million-tonne-plus global market, that is a drop in the ocean and certainly not one that suggests a structural shortage in China.
Rather, accelerated flows of the light metal seem to have reflected nothing more than a profitable arbitrage with the international market.
Similarly with zinc.
Import growth of 58 percent sounds impressive but in fact China imported only an extra 77,000 tons in the first half of the year relative to the first half of 2012, less than is sitting in the load-out queue at London Metal Exchange (LME) warehouses in New Orleans.
And as with aluminium, there is no suggestion that zinc imports signify anything other than arbitrage opportunism.
Far more significant in terms of broader market dynamics were the increased imports of refined copper and tin.
Net imports of the refined copper surged by 753,000 tons year-on-year to 1.69 million tons, even with the rare burst of export activity in the second quarter. That extra tonnage represented almost four percent of global copper production last year and its removal from the international market has depleted stocks everywhere else and generated front-month tightness in the LME contract.
Of course, it is now generally accepted that much of this import surge went only as far as the bonded warehouse zone in Shanghai, where it was used as collateral for financing.
Financial demand for copper has warped the read-through to China's "real" copper demand, but the flow of metal into China has still defined the market landscape outside of the country.
Equally significant in terms of market size were China's imports of tin, which more than doubled to 13,200 tons in January-June 2012.
Doesn't sound like much but tin is a very small market and the extra 8,000 tons sucked into China represented over two percent of last year's global output.
Tin is too expensive and available tonnage too marginal for it to be used as loan collateral. The extra call on metal reflected changes in China's own tin sector, specifically a six-percent drop in first-half production of the soldering metal.
That lower run-rate was equivalent to around 7,000 tons, tallying with the extra import demand.
Only two metals didn't see any increase in imports.
Lead imports, and for that matter exports, have been running at minimal levels for many months, making the headline seven-percent drop in H1 levels statistically insignificant.
Either the Chinese market is fully self-balancing or flows of metal are taking place somewhere below the statistical surface.
Refined nickel imports dropped almost 30 percent, or 22,000 tons. That is a big enough change to have real market impact, yet the picture is more complex than at first seems the case.
China is structurally short of nickel units in the same way it is short of copper. Some of that deficit has been met by the evolution of the nickel pig iron (NPI) sector, predicated on the import of nickel ore.
Superficially, therefore, reduced call on refined nickel from the rest of the world simply reflects a growing self-sufficiency, albeit with a shift in import dependency up the supply chain.
However, that would be to overlook changes in another category of the stainless-steel input, namely ferronickel.
Imports of ferronickel more than doubled year-on-year to 122,000 tons (bulk weight, not nickel contained).
That was largely a result of better availability.
It's noticeable that the Dominican Republic and Brazil joined the list of major origin countries in the first half of the year.
Xstrata's operations in the former were mothballed in 2009-2010 before a partial restart in 2011, which now seems to be feeding through into flows into China. Brazil, meanwhile, has seen two new ferronickel plants come on line over the last year, Anglo American's Barro Alto and Vale's Onca Puma.
Of course it is availability of nickel ore from Indonesia that has grabbed the market's attention since the government suspended export licenses and imposed a 20-percent export duty.
China's imports of Indonesian ore collapsed in June to just over 2 million tons, the lowest monthly print since April last year.
How long before they return to "normal" levels, assuming they ever do so, is anyone's guess, not least the association of Indonesian nickel miners.
Chinese buyers evidently took no chances, both by front-loading purchases from Indonesia and by buying more from the Philippines. The 3.7 million tons sourced from the latter in June represented an all-time high.
As a result there are somewhere around 16 million tons of nickel ore sitting at major Chinese ports, equivalent to around three months' total nickel ore and concentrate imports.
That will provide an important cushion for the nickel pig iron industry.
Rising ferronickel imports, meanwhile, will provide an important diversification option for China's stainless mills.
The Indonesian clampdown on raw materials exports has also disrupted the flow of bauxite to China. Imports slumped to just 187,000 tons in June, the lowest monthly level since April 2005.
As with nickel ore Chinese buyers appear to have pre-empted the changes to Indonesia's export regime. Despite the near evaporation of imports in June itself, first-half 2012 imports from the country were still up by 29 percent, or 4.6 million tons, on last year's equivalent figure.
Diversification of supply might be more difficult for bauxite buyers than their nickel ore counterparts. There is no bauxite equivalent to the Philippines, a single source of readily available material that can be tapped for lost units.
There is, though, another alternative feed for China's huge aluminum smelter sector.
Imports of intermediate product alumina grew by 1.4 million tons to 2.5 million tons in the first half of 2012.
The shuttering of some alumina capacity by Aluminium Corp of China has led to domestic prices trading above international ones. At the same time Australian alumina availability has improved due to the closure of Norsk Hydro's Kurri Kurri smelter.
The combined effect has been to reverse a trend of declining alumina imports and most local observers expect flows from the international market to remain robust in the second half of this year.
China is vulnerable to the removal of Indonesian bauxite supply, particularly if it proves protracted, but a materials shift to alumina is evidently mitigating some of the impact.
The stand-out in terms of China's raw materials imports was zinc.
It was the only metal to see a year-on-year decline in imports and a significant one at that, a 33-percent fall equivalent to 450,000 tons of concentrates.
This seems to have resulted from two key developments within the Chinese zinc sector.
Firstly, Chinese refined zinc production has fallen this year, down by 6 percent in the first six months.
Secondly, that has coincided with booming domestic production of concentrates. Mined output of zinc grew by 21 percent over the same period, a rate of growth that is so strong it has been greeted with a degree of skepticism by many analysts.
Yet even if statistically inflated, the combination of reduced smelter demand and increased domestic availability would explain why alone among the major metals zinc raw materials flows were significantly slower this year relative to last year.
— Andy Home is a Reuters columnist. The opinions expressed are his own.
