Clyde Russell is a Reuters market analyst. The views expressed are his own.
LAUNCESTON, Australia, Aug 8 (Reuters) – Will record imports of crude oil, iron ore and soybeans in July force a re-think of the consensus view that the China-led commodity boom is largely over, or is this just a one-month blip that can be dismissed?
Even the most bullish of analysts are likely to have been surprised by the strength in the July numbers, which stand in stark contrast to the last few months of gradually weakening economic indicators in the world’s largest commodity consumer.
Ultimately there are two basic explanations for the increase in commodity imports. Either demand has risen, or is expected to rise in the next few months, or stockpiles are being built, or a combination of the two.
Different dynamics exist for different commodities, so it’s worth looking at the breakdown. Crude oil imports rose to 26.11 million tonnes in July, a 17.8 percent leap from June and at 6.15 million barrels per day (bpd), the highest on record.
The surge in July was enough to turn the year-to-date number positive, with imports for the first seven months now 1.4 percent higher than the same period in 2012, where as at the end of June they were 1.4 percent weaker.
Some gain in imports was expected after the weakness in the prior month, with the 5.39 million bpd in June the lowest in nine months, but the extent of the jump is likely to lead to the conclusion the extra crude is being put into storage.
Some crude may have been re-exported in the form of refined products, as customs data show net fuel imports fell 5.4 percent in July, mainly as a result of a 2 percent rise in exports to 2.03 million tonnes, or about 478,000 bpd.
But the rise in exports of refined products is nowhere near enough to justify the gain in crude imports, and domestic demand indicators such as fuel sales and refinery throughput have still to be released.
This means that until there is some indication that domestic demand is rising, the most likely explanation remains that crude was flowing into storage tanks.
China is expected to bring as much as 690,000 bpd of new refining capacity online in the second half of 2013, and commercial inventories for this will have to be established.
Assuming each new unit needs 21 days of inventory available, this may add a total of almost 14.5 million barrels to demand in the second half.
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