21 Commodities Say China isn't the Problem

One of the reasons advanced for the plunge in commodity prices is concern over the outlook for Chinese demand for raw materials as growth slows in the world's second-largest economy.

But these are fears not necessarily in evidence, as can be seen by trawling through the detailed customs data for July.

There were at least 21 commodities that showed increases in imports greater than 20 percent in July this year, compared to the same month in 2014.

While it's true that many of these commodities are minor, there are some fairly major ones showing strong growth as well, led by crude oil, which saw imports jump 29.3 percent in July from the same month a year earlier.

Among the notable increases were a massive 236,594 percent jump in ethanol imports in July, with that single month accounting for more than half of total imports of the fuel so far this year.

There were other agricultural imports that showed surprising strength in July, with wheat up 158 percent, barley by 67.9 percent, corn by 1,184 percent, cassava by 28.5 percent, rice by 78.2 percent, soy oil by 25.8 percent, palm oil by 53.3 percent, natural rubber by 70.1 percent and sugar by 72.7 percent.

Among the metals, tin ore and concentrates imports increased by 27 percent in July, refined tin by 50.7 percent, zinc ores by 84.5 percent, molybdenum by 139.8 percent, tungsten by 33.4 percent, uranium by 227 percent, chromium ore by 35.8 percent, silver by 63.3 percent and platinum by 37.9 percent.

There is always a danger in placing too much emphasis on just one month's figures, but the above numbers show that commodity import demand in China is far from weak, especially when looking at raw materials beyond the majors.

MAJOR COMMODITIES ALSO RESILIENT
Even among the major commodities, the picture is not bleak, although crude is the only one that managed growth above 20 percent in July.

Iron ore imports were up 4.4 percent in July, while those for copper ore and concentrates gained 7.2 percent, although coal was down 7.7 percent from the year-earlier month.

While there will be a number of factors at work across different commodity markets, one common factor that may help explain the strength in China's July imports is price.

The weakness in commodities across the board has likely sparked buying interest, a trend that may continue given the acceleration of price declines in recent weeks.

The Chinese have a history of increasing purchases of natural resources when prices are weak, even if these do flow into inventories in the short term.

Sustained price weakness, coupled with the yuan's recent depreciation is likely to give a boost to China's export-orientated manufacturing sector, and with the rest of the global economy not looking too dire, there may well be sufficient demand for consumer goods at cheaper prices.

The July data may be the start of the reversal of the recent trend of slowing growth in China's commodity imports.

It's also worth noting that of the 21 commodities with import growth of more than 20 percent in July, 15 are also in positive territory for the first seven months of the year compared to same period in 2014.

There are several solid reasons as to why commodity prices have performed so abysmally so far this year, chief among them the structural oversupply plaguing many markets, as well as the impact of the recent volatility in equity markets.

But poor Chinese import demand doesn't seem a valid reason for commodity price weakness, and while the risk of a hard economic landing in China can't be ruled out, if history is a guide, weak commodity prices tend to boost Chinese demand.

By Clyde Russell