LAUNCESTON, Australia: There was always going to be a decline in China's commodity imports in February, but the pullback appears to have been bigger than expected.
Crude oil, iron ore and copper all suffered sharp drops, so much so that even putting them together with January's numbers still leaves year-on-year comparisons in negative territory.
The question then becomes is this the start of a new trend toward renewed weakness in the world's largest importer of natural resources, or is it more likely that temporary factors are at work?
It's always risky to call a trend based on one month's data, but despite the weak data there is little evidence elsewhere to support the view that China's economic growth is losing momentum.
In fact overall exports in February were much stronger than expected, growing 21.8 percent year-on-year. It was imports that were weaker-than-expected, slumping 15.2 percent year-on-year against a Reuters consensus forecast for an 8.8 percent decline.
Much of the softness in imports was in commodities and only so much can be explained by the week-long Lunar New Year holiday falling in February this year but in January last year.
Crude imports were down 2.4 percent for the first two months of the year compared to the same period in 2012, while iron ore imports were 1.8 percent weaker and copper inflows dropped 27.8 percent.
This is unambiguous: China has had a weaker start to 2013 for commodity demand than it did in 2012, despite the economic outlook being brighter currently.
So, what factors can explain the weakness in import demand?
It varies across commodities but one that stands out for crude oil and iron ore is price.
Iron ore rallied more than 80 percent between the three-year low in September last year to the peak of $ 158.90 a ton in February this year.
Prices rallied as China ramped up imports of the steel-making ingredient, with November, December and January just past being the three strongest months on record.
A combination of sharply higher prices and the completion of inventory re-stocking was probably behind the drop to imports of 56.42 million tons, a decline of 14 percent from January and the weakest month since October last year.
Crude oil prices have also rallied sharply in recent months, with Brent futures jumping 11.7 percent from the recent low on Dec. 6 to the high so far this year of $ 119.17 a barrel, reached on Feb. 8.
Cargoes that were delivered in February would have been bought at a time of sharply rising prices, thereby curtailing appetite among refiners to buy any more than they needed for immediate consumption.
It's also worth noting that January and February last year saw unusually high crude imports as China filled commercial and strategic stockpiles at a time when many market players were concerned about the likely loss of Iranian supplies.
It's estimated that as many as 400,000 barrels per day (bpd) of crude were flowing into storage tanks in the first half of last year.
In February last year, China imported 5.95 million bpd, meaning that once the likely flows into stockpiles are accounted for, the imports of 5.68 million bpd over the January-February period this year don't look as soft as they might have appeared at first.
With copper, there are probably price effects at work, but also the impact of a large overhang of inventories inside China, built up in part because of the use of the industrial metal for financing. Copper imports fell to their lowest in 20 months in February, and over the first two months of the year the decline was 28.7 percent from the year earlier period.
— Clyde Russell is a Reuters market analyst. The views expressed are his own.
It's likely that imports will continue to ease over the next few months as traders report fewer cargoes of refined copper being booked because of sufficient inventories.
The February commodity import data does sound a note of caution, but it's still in line with the overall view of a Chinese economy recovering from last year's slowing of growth, albeit at a modest pace.
— Clyde Russell is a Reuters market analyst. The views expressed are his own.
