Despite the continued weakness of the Chinese economy, the performance of the first two months of 2024 shows an interesting phenomenon: imports of major commodities remain strong, even exceeding last year's levels. **Imports of liquefied natural gas, coal and iron ore all increased, although China's economic data showed no signs of a strong recovery and consumer confidence remained subdued.
The reason behind this phenomenon is not entirely driven by China's economic growth, but is closely related to the market dynamics of various commodities.
China, the world's largest importer, increased its imports to 11.73 million b/d in February 2024, up from 11.31 million b/d in January. While China Customs did not release data for January and February separately (to avoid data distortion caused by the Lunar New Year holiday), LSEG estimates that China imported an average of 11.51 million barrels per day in those two months**, an increase of more than 1 million barrels from the same period last year.
This increase is largely due to increased demand compared to January 2023, when China had just recovered from pandemic lockdowns. In addition, Chinese refiners bought more oil at the time of oil prices due to lower commodities** in Q4 2023**.
In fact, oil prices appeared in the last quarter of last year, after reaching their 2023 highs of more than $95 per barrel in September last year. Considering the time lag of about two months between the purchase and the arrival in China, it can be inferred that Chinese refiners continue to increase their purchases at the time of oil prices.
In addition, in January 2024, China issued a large number of import quotas to refiners, an increase of about 60% from the beginning of last year, and issued annual quotas to some companies.
This upfront allocation of large import quotas will help refiners better plan their purchases for 2024. Despite challenges such as weak manufacturing and the property crisis, China's imports remained high compared to the first two months of 2023. This is mainly due to the fact that China has taken advantage of the opportunity of oil prices to increase its cheap reserves.
Overall, despite the overall weakness of China's economy, the strong growth in commodity imports reflects market dynamics and China's demand for strategic reserves for resources such as cheap **. It also shows that China is still an important player and influencer in the global commodity market.
In terms of the LNG market, China has demonstrated strong purchasing power. In February 2024, China's LNG imports hit a new record of more than 5.5 million mt, up 15% year-on-year, which is also the highest import level since February.
This growth was driven by buyers taking advantage of the opportunity of large spot spots, abundant inventories and relatively weak demand in Asia.
According to vessel tracking data released by Bloomberg last week, Chinese LNG importers are actively looking for more favorable LNG in the spot market. In February 2024, North Asian LNG** fell sharply from October levels, hitting its lowest point in nearly three years in the middle of the year. As of last week, LNG shipments to Northeast Asia averaged 8 in April$30 million British thermal units (MMBTU), the lowest price since April 2021.
At the same time, China's coal imports also showed strong momentum in early 2024 against the backdrop of high power demand and insufficient hydropower production. Despite the ongoing crisis in the real estate sector, China's iron ore imports have also shown solid growth. Reuters columnist Clyde Russell pointed out that the recent increase in iron ore inventories by steel mills may indicate that China** is about to introduce measures to boost the steel industry and the economy as a whole.
It is worth noting that China's import growth of major commodities does not appear to be constrained by weak economic performance.
China's economic performance has been in the spotlight since restrictions were reinstated early last year. Manufacturing activity has been in contraction territory for five consecutive months and still failed to expand in February.
Some analysts warned last month that consumers** were declining and that deflationary pressures could lead to consumer spending spending becoming an entrenched pattern of behavior.
Despite China's record-breaking travel figures during the Lunar New Year holiday in February, CNN estimates that consumer spending remains below pre-pandemic levels due to weak consumer confidence in a deflationary environment.
On Tuesday, China set its economic growth target for 2024 at around 5 percent, in line with market expectations.
At the National People's Congress, China said it would seek to "transform" its economic growth model and take steps to reduce industrial overcapacity and address risks and debt problems in the real estate sector.
Commenting on China's economic growth target, Lynn Song, chief economist for Greater China at ING, said it could take some time to restore confidence and that the process could be uneven.
She added that the policies to be announced in the coming weeks and months will largely determine whether consumer and business confidence bottoms out this year**. Overall, China's performance in the global commodity market remains to be closely watched.