China May Commodities Imports Beat Forecasts; Oil at Record

China's imports of key commodities in May confounded expectations of a fall, with crude oil shipments at a record high and both copper and iron ore imports unexpectedly rising more than 10 percent from a month ago, data showed on Sunday.

Still, analysts cautioned against drawing excessively optimistic conclusions, as actual demand from users remained weak and the bulk of oil and copper shipments in May was likely to have been moved into storage.

Other data also implied that China's economy is struggling domestically, as prices, output and sales at home flagged while trade stayed buoyant.

China, the world's second biggest energy consumer, imported a record 25.48 million tonnes, or about 6 million barrels per day of crude oil in May, up 18.2 percent from a year ago. However, implied oil demand inched up only 0.4 percent in May year-on-year, after April's first yearly decline in over three years.

"For both April and May we reported negative growth in our sales of diesel oil, as industrial fuel consumptions declined," said a fuel marketing official with state-run Sinopec Corp <0386.HK>, Asia's largest refiner.

A rebound in Iran crude oil loadings after Beijing and Tehran resolved contract disputes in late March, as well as increases in West African oil imports due to attractive pricing may have contributed to the surge in crude shipments, said a Beijing-based crude oil trader.

Imports of copper, of which China is the world's largest buyer, climbed to 419,741 tonnes, 11.9 percent more than April and 65 percent above year-earlier level.

The rise surprised traders and analysts who had expected that weak demand, high stocks and strong spot prices on the London Metal Exchange would cut arrivals for a third month.

"I can only think of one reason: players relocated some copper from the United States to Shanghai and the metal arrived in May," said Xiao Jing, an analyst at Beijing Capital Futures, referring to refined copper.

Traders have said that a global buyer expecting higher prices in China in coming months had shipped a relatively large shipment of refined copper from the United States to Shanghai in late March, which could have arrived in the city in May.

"If importers had bought in May, they would have made huge losses," he said.

READY TO TURN A CORNER?

Data released on Saturday showed inflation dipped to a two-year low in May while economic activity remained weak, reinforcing expectations that further policy easing could be in the pipeline.

Beijing's surprise interest rate cut on Thursday, along with the government's promise to fast-track some infrastructure investments, have soothed fears of an economic hard-landing in the world's top commodities buyer, with analysts and traders expecting domestic demand to recover late in the third quarter.

Few, however, expect a surge in imports.

"End-users should start to see their order books improve over the coming months ... but uncertainties in Europe, more selective lending by banks and home purchase restrictions will prevent a big jump in appetite," said an analyst, speaking on condition of anonymity.

Iron ore imports climbed to 63.84 million tonnes, up 10.7 percent from the preceding month, as Chinese mills keep steel production rates at a near record of 2 million tonnes per day.

Demand for iron ore is expected to remain strong in the near term, with the China Iron and Steel Association having forecast crude steel output to stay near record in June as sector bets on improved steel demand.

Separately, the world's No. 1 soy buyer also imported 5.28 million tonnes of soybeans in May, up 8.2 percent from April but much lower than the commerce ministry's forecast of 7.22 million tonnes.