The Debts of the Lenders: Chinese Commodity Imports to Slow in Q3 and Q4 of 2009

China’s Commodities Imports To Moderate In 2H 2009 - RBS

China’s commodities imports are likely to moderate in the second half of this year as the boost from restocking, arbitrage opportunities and an easy credit policy starts to fade, Royal Bank of Scotland said in a report issued Monday.

“While China’s explosive commodity import and fixed investment demand surprised positively in the first half, it is likely to disappoint in the second half,” Ben Simpfendorfer, the bank’s China economist, said in the report.

China’s recovery will generally look more ordinary in the second half compared with the rest of the world, as the impetus from stock-building slows, it said.

The country’s urban fixed-asset investment in the January-July period rose 32.9% from the first seven months of last year, slowing from a rate of 33.6% on year in the first half, according to data issued by the National Bureau of Statistics. New yuan loans also fell sharply to CNY355.9 billion in July from CNY1.53 trillion in June.

People’s Bank of China Vice Governor Su Ning said earlier this month that loan
growth is likely to slow in the second half from levels in the first half, partly because
banks often concentrate on getting loans out earlier in the year, and government backed
investment projects are likely to taper off.

Restocking was a major reason for China’s rising commodity imports in the first
half, while arbitrage opportunities presented by lower foreign prices helped bring a simultaneous jump in imports of both base metals and bulk commodities, RBS said in the report.

Buying for state reserves kept local prices for many commodities higher, increasing the attractiveness of imports.

In the first half of this year, the country’s State Reserve Bureau was reported to have purchased 590,000 metric tons of aluminum, 159,000 tons of zinc and 235,000 tons of copper.

China imported 26.48 million metric tons of soybeans in the first seven months of this year, up 28% from a year earlier, as domestic prices were kept high by the build-up in state reserves.

However, as stock-building has slowed and arbitrage opportunities have narrowed, demand for imported for base metals and bulk commodities has been slowing, it said. The central bank has recently warned that it could fine-tune its moderately loose monetary policy, raising concerns that cash liquidity could tighten and weighing heavily on sentiment recently in local markets from equities to futures.

“This (expected tightening) will curb speculative demand for commodities,” said
RBS. Iron-ore spot prices began to ease last week after nearly doubling since touching lows in April. Domestic steel prices also faltered following a three-month run higher.

Source - CME News for Tomorrow