January 29, 2018 / 2:05 PM / 6 months ago

COLUMN-Five stand-outs in China's base metals trade last year: Andy Home

(The opinions expressed here are those of the author, a columnist for Reuters)

* China's raw materials imports in 2017: tmsnrt.rs/2DLh1qA

* Refined lead trade: tmsnrt.rs/2Ejo8HN

* Refined zinc trade: tmsnrt.rs/2Eiu4AI

* China's copper scrap imports: tmsnrt.rs/2DfjoSY

By Andy Home

LONDON, Jan 29 (Reuters) - China’s base metals imports stopped offering a simple, over-arching story line several years ago.

The country has built out ever more processing capacity over the last decade, meaning that the “real” story is often what’s happening at the raw materials stage of the supply chain.

In cases such as aluminium, China has arguably constructed too much smelter capacity, to the point that the rest of the world has stopped caring about how much it imports but rather how much it exports.

Across the rest of the metallic complex, individual market dynamics have become ever more important, fracturing the Chinese trade picture into multiple, sometimes contradictory parts.

Against an increasingly kaleidoscopic backdrop, here are five key take-aways from last year’s trade flows.

Graphic on China’s raw materials imports:

tmsnrt.rs/2DLh1qA

Graphic on China’s refined lead trade:

tmsnrt.rs/2Ejo8HN

LEAD TURNAROUND

China flipped from marginal net exporter of refined lead in the previous four years to big importer in 2017.

Indeed, net imports of 70,900 tonnes were the second highest ever, eclipsed only in 2009, a year of global financial and trade upheaval.

Two countries accounted for the bulk of last year’s inbound flows, Australia with 39,400 tonnes and Kazakhstan with 26,300 tonnes.

What caused this dramatic reversal in trade patterns?

It was a combination of the steady global tightening in mined raw materials availability and disruption to domestic supply, particularly in the scrap sector, from waves of environmental inspections.

It’s worth noting that China’s imports of lead concentrates at 1.28 million tonnes bulk weight were the lowest since 2008.

All imports from North Korea, China’s fourth largest supplier in 2016, stopped in the fourth quarter of last year due to international sanctions.

That leaves China ever more dependent on an already stretched international supply chain and its ability to secure raw materials this year will determine its appetite for more metal in refined form.

The pace of refined lead imports dropped sharply in the fourth quarter, suggesting the scramble for units in the domestic market has diminished.

But for how long?

Graphic on China’s refined zinc trade:

tmsnrt.rs/2Eiu4AI

ZINC’S LATE-YEAR SURGE

After a slow start China’s imports of refined zinc steadily accelerated over the second half of the year to reach a record monthly high of 122,814 tonnes in November.

The annual count of 675,00 tonnes was also an all-time high, just beating the 670,000 tonnes imported in 2009.

The top two suppliers were Australia (164,000 tonnes) and Spain (161,000 tonnes). The former has long been a core shipper to China but Spain only sporadically so in the past.

The scale of imports over November and December, a cumulative 224,000 tonnes, suggests these “imports” were metal being customs cleared after sitting in bonded warehouses at Chinese ports.

That said, stronger imports fit well within zinc’s narrative of physical supply chain tightness and if they continue at this sort of pace, China’s trade figures will add further fuel to zinc’s already raging bull fires.

Contrarians may want to take note of the 22 percent increase in imports of mined zinc concentrates, suggesting that China is winning its share of raw materials in a tough market.

Graphic on China’s copper scrap imports:

China's scrap imports: tmsnrt.rs/2DfjoSY

COPPER SCRAP IN FOCUS

China’s net imports of refined copper dropped 9 percent last year to 2.9 million tonnes, the second consecutive year of reduced appetite for overseas metal.

That could change this year, though, depending on what happens to China’s copper scrap imports.

Scrap has been an important, albeit often overlooked, part of China’s copper dynamics for many years.

The country’s imports of secondary material seemed to be locked in a long-term downtrend until last year, when they rose by 6 percent to 3.56 million tonnes in bulk weight.

Improved global supply was a key factor in the turnaround as a rising copper price unlocked material that had been bought at higher prices.

Stronger inbound flows may also have been down to traders maximising their import quotas ahead of potentially massively disruptive rule changes on scrap this year.

If fully implemented, the new regulations on quality and purity levels could lead to an almost complete cessation of copper scrap imports.

It seems almost inconceivable that China would shut off such an important alternative supply of copper, but the level of 2018 import quotas granted so far points to a drastic reduction.

The precedent for what might happen this year is already there in China’s ban on imports of plastic waste, a largely unexpected move that has sent shockwaves down the plastics supply chain.

NICKEL - FEAST AND FAMINE

Any lingering fears that resource nationalism in Indonesia and the Philippines would starve Chinese nickel pig iron (NPI) producers of raw material should be laid to rest.

Sure, imports of nickel ore from the Philippines dropped 5 percent last year to 29.11 million tonnes but Indonesia returned to help plug any gap.

Imports of Indonesian ore rocketed tenfold to 3.84 million tonnes as that country’s government partly reversed its previous ban on exports of unprocessed minerals.

The offshoring of Chinese NPI production to Indonesia, meanwhile, continues apace, with the flow of such material back to China surging 32 percent last year to almost 1 million tonnes.

Amid this feast of raw materials, look no further to understand why China’s imports of refined nickel slumped 38 percent last year.

There was, however, a noticeable pick-up in December itself. At 40,500 tonnes net imports were the highest they’d been since April 2016.

Russian material accounted for half that amount, which is significant since the London Metal Exchange will start in April the delisting process for two Norilsk Nickel brands of nickel commonly used by metals financiers.

Both brands remain deliverable to the Shanghai Futures Exchange, raising the possibility of a mass relocation of Russian metal into China.

Was December’s high tally an end-of-year one-off or the start of something bigger?

TIN AND THE MYANMAR TRADE

China’s net imports of refined tin collapsed to just 1,800 tonnes last year, the lowest level in a decade.

This is down to the flow of raw materials from neighbouring Myanmar, which has allowed Chinese smelters to lift output despite challenged domestic mine supply.

Imports of tin concentrate from Myanmar fell 38 percent at a headline level in 2017 but that is misleading. Tin producers’ association ITRI argues that improving grades in the Myanmar material meant that in contained tin terms imports were actually 7 percent higher in the first 11 months of 2017.

Myanmar’s ability to keep supplying tin concentrates at the pace of recent years is the critical dynamic in both the Chinese and global tin markets.

Just beware the headline figure!

Editing by Susan Fenton

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