China's renewed momentum to drive commodities: Clyde Russell

Dec 19 2012, 15:50 IST
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chinese currency (AP) chinese currency (AP)
SummaryThe outlook for crude imports into China depends on whether the nation's refiners use their new capacity to increase exports.

China's economic slowdown was the dominant story for the region's commodity demand this year and its re-acceleration is sure to set the tone for 2013.

However, it's a good policy for any analyst to look back at what they wrote over the past year and ascertain where they were on the money and where they were wrong as this helps gain an understanding of what may occur in the future.

In a review and outlook piece similar to this one I wrote in December last year, I said there was "little evidence to support the bearish view that China is poised for a hard landing."

I thought that China, the world's largest commodity buyer and consumer, would experience a soft landing, with weaker outcomes in the first and second quarter.

Turns out that while the call for a soft landing was correct, my timing was out and the slowing of both growth and commodity demand came in the middle two quarters.

This delay in the expected soft patch influenced a whole range of other calls, including one I made that China's crude imports were as high as they were likely to get after they reached 5.95 million barrels per day (bpd) in February.

At the time I thought the Chinese wouldn't stockpile more crude given the high Brent price of above $120 a barrel, but I didn't count on the worries about the loss of Iranian supplies because of Western sanctions against Tehran's nuclear programme.

Crude imports eventually topped out for the year at 6 million bpd in May, but I was right that second half imports would be more in line with underlying demand, a trend likely to continue into 2013.

The outlook for crude imports into China really depends on whether the nation's refiners use their new capacity to increase exports of products, or whether they keep run rates just high enough to satisfy domestic demand.

On Feb. 24 I suggested that China would become a net diesel exporter in 2012, and by end October it has shipped out a net 10,300 bpd of the transport fuel, a turnaround from 2011's net imports of 8,400 bpd.

However, this is still a relatively small amount of product making its way on the global market, although there is the potential for much more should the refiners believe it profitable and the authorities grant permission.


The midyear slowdown in China's economy also impacted the iron ore market, which up till

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