The world’s largest consumer of natural resources, China, did not influence prices or volumes. As per data on commodity trade for 2022. The core question is whether China will reclaim its position as the primary force behind the commodity markets by 2023.
The predictions for a robust 2023 have essentially replaced the market storyline of a weak 2022 concerning China’s thirst for commodities. Moreover, upon abandoning its rigorous zero-COVID policy, the worlds 2nd largest economy has began reopening and recovering.
However, it’s important to consider what actually happened last year. China’s 2022 shipments of commodities varied, and the current patterns might persist for a while.
The shipments of natural gas and oil, which fell by 0.9% & 9.9%. Accordingly, in 2022 compared to the previous year, have been the key commodities that were most clearly weak.
As per official statistics issued on January 13. Imports of crude oil decreased for a second consecutive year to an equal to 10.17 million barrels /day (bpd).
The cause is quite simple to identify: COVID lockdowns reduced domestic consumption. And decreased exports of petroleum products for the initial 9 months resulted in an 11% decrease in these shipments for the entire year.
Commodity Markets Outlook
However, the last quarter in 2022, the pattern for imports of oil and exports of goods changed. Both increased significantly when the economy began to recover. Beijing increased the oil export quotas to help the economy and to give refiners the opportunity to profit from the large regional margins for goods, particularly diesel.
When compared to December of the previous year, crude oil imports increased by 4%, totaling 11.3 million bpd. With 7.7 million tonnes, oil exports reached their highest monthly total since April. And increased by 25% all from Nov 6.14 million tonnes.
The amount of natural gas imported in Dec, from pipeline a well as liquefied natural gas (LNG), was 10.28 million tonnes, decreased 11.8% from the exact same month of 2021 and decreased 0.39% from Nov.
As China’s economy strengthens, imports of natural gas are also expected to increase.
However, there is a title of concern that also pertains to crude oil. The trend of spot prices will determine in large part whether Chinese utilities resume importing the quantities of LNG. That saw the country becoming a world’s major importer in 2021 before handing the title back to the Japanese last year.
Major Current Market price
Long, Crude oil contracts will still allow China to import Liquefied natural gas. But doing so at the same level as in the past hinges on utilities deciding that market prices are low sufficiently as to make the extremely cooled fuel economically feasible in chinese market.
It is debatable that what level of ease there is for spot market prices. It is expected to be considerably less than the current market price of $23 per mmBtu on delivery of LNG-AS to north Asia .
Although the price has now been progressively declining since hitting a reaching an all time high of $70.50 per mmBtu during late Aug. It is still expensive by historical standards given that it only briefly trade above $20 well before starting of 2021.
Refiners in China have previously demonstrated reluctance to purchase oil when they believe the price has risen too quickly or too far.
They’ll probably want to increase imports in 2023 to keep up with increased domestic demand brought on by the economy’s reopening and continuous oil export quotas. Although if prices begin to rise sharply above the $85.28 level Brent crude futures settled at on January 13. They might start to remain cautious.
It’s also important to note that in the first eleven months of 2022. China purchased around 700,000 barrels per day more than what it refined. As a result, refiners probably have enough inventory if they want to increase throughput without significantly increasing imports.
Also, considering China’s imports for next several months are probably now thoroughly planned. The real crude market operates differently from financial futures like Brent.
This implies that it will take many months until refiners’ increased import plans show up in the official customs data.
Coal, iron ore & Base Metals
Commodities such as iron ore which can be more simply and swiftly procured are likely to react to China’s reopening more speedily than other commodities.
Steel unprocessed material imports decreased 1.5% from 2021 to 2022. However, if China’s steel plants raise output as the country’s economy begins to recover. Iron ore import may surge significantly in the following months.
Imports of coal may also increase, particularly as Chinese consumers take full advantage on Beijing’s action to lift its unofficial embargo on imports via Australia, as country’s previous No. 2 source.
While China may still not buy a lot of Australian coal, there is potential for a return of coking coal exports, which are necessary for the production of steel.
Copper is just another commodity that may see increased Chinese demand. But this is also where there is the greatest potential for disappointments.
With shipments of unwrought copper increasing by 6.2% and those for ores & concentrates increasing by 8%, China’s imports on copper were among the few areas of strength in 2022.
With the world’s economy forecast to battle for growth in 2023. It’s unknown how much additional copper China’s output industrial sector would need.
If industrial demand is weak, the bullish copper episode depends on other application areas for the industrial metal, mostly building, and if they will be sufficient to cause a significant increase in China’s imports in 2023.
Overall, China’s reopening is good for its demand for commodities. But it’s doubtful that the reality will be as simple and sure as the industry seems to be hoping.