Chinese commodity imports expected to slow

Chinese commodity imports are expected to slow in the second half of the year from record levels as the impact of the country’s stimulus package, arbitraging opportunities and stock-piling fade, according to a Royal Bank of Scotland report being published Monday. The market has been expecting a slowdown in Chinese imports for the past three months, but when data for July iron ore and crude oil imports were published last week, it showed another sharp increase to record highs. China’s imports of commodities including copper, aluminium, coal, iron ore and crude oil surged in the first half of the year in spite of the economic slowdown, helping to push up world prices, which had collapsed in the aftermath of the global crisis. “China’s commodity imports reached record highs in 1H09, buoying global commodity prices and confidence in China’s economic recovery,” Ben Simpfendorfer, chief China economist for Royal Bank of Scotland, wrote. “However, it is less clear what share of imports was intended for final domestic demand.” One of the reasons behind the import rises has been a slump in domestic production as low prices made high-cost mines uneconomic, particularly in the iron ore sector. BHP Billiton, the world’s largest miner, said last week that up to 50 per cent of China iron ore production was shut down in the first half of the year. As commodity prices rebound, miners and bankers forecast a reverse in that trend. Restocking by China’s state commodity reserve bureau played a large part in the record import volumes, as did easy credit from state banks, which encouraged some firms to buy commodities speculatively, according to the report. Some producers took advantage of arbitrage opportunities presented by plummeting global commodity and shipping prices to replace domestic production with imported supply, illustrated by the steep drop in energy use in the first half of the year as energy-intensive miners and smelters shut down operations in favour of cheaper imports. Imports of unwrought copper and aluminium in the first half of the year were more than six times the level seen in 2006, when GDP growth was averaging 11 per cent, while monthly imports of crude oil and iron ore reached their highest ever level in July. source:www.ft.com