LONDON: One month's data does not a trend make.
That useful statistical maxim holds particularly true of Chinese import figures at the start of any year because of the variable that is the timing of the Lunar New Year holidays.
However, with one or two exceptions, January's metal trade figures merely confirmed trends that were already emerging at the end of last year.
One that is likely to be a key theme of China's trade this year is the gradual shift away from refined metal towards raw materials imports.
That reflects the continued build-out of processing capacity in China, an evolution that is most advanced in the aluminum sector but which is becoming ever more prominent a feature across the industrial metals spectrum.
Shorter-term arbitrage fluctuations interact with this underlying dynamic with the potential to accelerate it or slow it at any given time.
As China becomes increasingly self-sufficient at the refined metal stage of the supply chain, the question of potential export flows will become increasingly important.
Again, aluminum is a case in point. What the country imports in primary metal form is dwarfed by what it exports as fabricated product.
It is an extreme example. But this year, for the first time ever, it looks as if the copper market will have to factor in a steady counter-flow of shipments out of China.
The most keenly watched component of China's metals trade is the level of refined copper imports.
This is a shame because it has also become one of the least useful indicators of Chinese demand for industrial metals, given the use of imported copper as a financing vehicle.
January's refined copper imports came in at 243,000 tons, very much within the range set in the fourth quarter of last year.
Compared with January 2011 imports were down by 28 percent and year-on-year comparisons are going to continue looking weak for some time given the surge in flows over the first quarter of last year.
Moreover, just about every analyst is expecting volumes to decline over the coming months due to lower bookings on annual contracts by many Chinese users. If imports don't decline, it will because of continued strength in demand from financiers rather than from manufacturers.
Net import figures will also be depressed by continued exports as smelters capitalize on changes to the tax status of tolling contracts. China exported 26,000 tons of refined copper in January, very similar to December's level. Extrapolating the last few months' figures over 2013 would suggest exports of around 300,000 tons for the full year.
As important as refined metal flows, though, is the recent acceleration in imports of concentrates.
They totaled 761,000 tons (bulk weight, not metal contained) in January, confirming the step-change that became apparent in the fourth quarter of last year.
Better concentrates availability and improved smelting terms are likely to drive strong concentrates imports for the foreseeable future.
Every ton of refined metal that China can make itself is a ton it doesn't need to import.
Net imports of primary aluminum were 2,350 tons last month, the lowest monthly level since November 2011.
Negative arbitrage between London and Shanghai is a key consideration but it is merely accelerating a longer-term trend.
The last time China was a major importer of primary aluminum was in the first half of 2009, when the arbitrage was distorted by “strategic” purchases of metal by the Chinese government.
The country, meanwhile, remains a steady net exporter both of alloy and semi manufactured products.
The latter have held steady in a 220,000-240,000-ton per month range since the middle of last year with January's 230,000 tons not disrupting that trend.
However, product exports should be watched closely over the coming months given expectations that rising domestic surplus
Imports of both alumina and bauxite, meanwhile, continue to stabilize after the mid-2011 disruption to bauxite flows caused by the Indonesian government's new rules on exports of unprocessed raw materials.
Rising Chinese smelter capacity is not being matched by alumina capacity expansion, suggesting that imports of alumina in particular may steadily build in the coming months.
China's net refined nickel imports came in at 19,600 tons last month, the highest monthly level since October 2011.
This is surprising, given the well-documented build-out of domestic nickel pig iron (NPI) capacity, an increasingly important feed-source for China's stainless steel sector and one which should in theory reduce demand for imported refined metal units.
Imports of Indonesian nickel ore, the key metallic input for China's NPI sector, have now fully normalized after the Indonesian government's change of rules on unprocessed mineral exports in June last year.
Indeed, at almost 4.0 million tons in January they are now running stronger than at any time bar the couple of months before the June clampdown, when Chinese buyers were rushing to buy just as much they could.
The jump in refined metal imports, therefore, could be no more than a statistical year-start blip. This is one area where the next couple of months' data might provide an improved perspective.
That said, analysts at Barclays Capital have mooted the possibility that increased flows of refined metal last month may be connected with possible purchases by the government stockpile manager, the State Reserves Bureau (SRB).
Net imports of refined zinc remained robust in January at 49,000 tons.
The London-Shanghai arbitrage is import-friendly, almost uniquely among the base metals, and that appears to be whetting the appetite of financiers, particularly since banks have tightened the screws on the copper-collateral trade.
Certainly, there is no suggestion that this continued metal flow is required to meet manufacturing needs.
The country's smelters collectively cut production last year in the face of weak demand and pricing. A sign of local market distress was the helping hand offered them by the SRB, which soaked up some 100,000 tons of surplus stock last November.
Low smelter run-rates and strong domestic mine production resulted in a dramatic drop in China's imports of zinc concentrates last year.
That trend may be turning, judging by the last few months' data, including January's 183,000 tons of imports.
Smelter treatment terms are expected to improve this year, which could incentivize Chinese smelters to raise run-rates again, in effect transforming global concentrates surplus to (more) metal surplus.
Appetite for imported concentrates going forwards will therefore be a key indicator of broader market dynamics.
China hasn't been a major importer or exporter of lead in basic metallic refined form for a couple of years and there is no reason to expect any change soon.
This is not to say that domestic market surplus might not seep out in another form below the radar of the country's customs department.
As with zinc, the real story may prove to be at the raw materials stage.
Imports of concentrates rose by 26 percent last year and January's figure of 135,000 tons was up 53 percent year-on-year, although that may be overstating the trend.
China's net imports of refined tin remained strong at 2,500 tons in January, extending a trend that has been running for well over a year.
The country has also been a consistent importer of tin concentrates over the same time-frame.
The jump in concentrates imports to 17,700 tons in January, the highest monthly total ever, looks like a rogue number.
The figure was inflated by 16,900 tons of imports from Myanmar, which seems highly unlikely to be the start of a bigger trend.
One word of caution for tin bulls, though.
Arbitrage and low international prices are likely as important a driver of imports as manufacturing demand.
China has flipped to net exporter when international prices have risen in the past, albeit in a form of the metal that doesn't make it into the monthly trade headlines.
— Andy Home is a Reuters columnist. The opinions expressed are
his own.
