The State of China Commodities: A Slow & Unsteady Recovery

(Bloomberg) -- Supply and demand in China’s gigantic commodities industry show how the world’s biggest consumer is making a gradual but uneven return to normality after being ravaged by the coronavirus.

While oil refining and coal use slowly trend higher as factories resume operations and people get back in their cars and return to work, metals stockpiles are still surging as consumption teeters globally and soybean processing has slowed due to a drop-off in imports.

The mixed signals will offer some hope to investors banking on China’s recovery to help mitigate the carnage in global markets, but they indicate the country is still far from running at full throttle. Oil prices dropped to the lowest since 2003 on Wednesday while copper fell below $5,000 a ton for the first time in three years.

Following is a rundown of some key indicators of China’s commodity demand, and economic activity more broadly.

Runs Returning

There are tentative signs that China’s massive oil refining sector is slowly accelerating its pace of return after shuttering as much as 15% of capacity.

Refiners will probably increase throughput by 400,000 barrels a day this week, compared with an average rate of about 250,000 barrels a day over the previous three weeks, according to estimates from senior officials at the nation’s top refiners.

The hitch is that the recovery is concentrated in the country’s privately-owned independent processors, who are under more financial pressure to resume operations than state refiners, according to the officials, who asked not to be identified as the information isn’t public. The nation’s total refinery run rate stands at about 11.1 million barrels a day this week, they said, compared with more than 13.8 million in December and a low of 10 million in late February.

Traffic Flows

The number of vehicles on China’s highways has returned to typical levels, topping 30 million a day early last week. That’s higher than same time the previous year, indicating that social distancing has prompted more people to use their own cars in favor of public transport, BloombergNEF analysts includingRichard Chatterton wrote in a note Tuesday.

Vessel data shows that numbers of crude tankers, bulk carriers and container ships entering Chinese ports has also returned to normal.

Powering Up

Coal use for power generation has been creeping back. Consumption by coastal plants of the biggest power groups is up 4.1% in the last week to the highest since Jan. 21, before the start of Lunar Near Year holiday, according to data from the China Coal Transport & Distribution Association. The burn rate is still down by about 24% from the same post-holiday period as last year.

Liquefied natural gas imports are poised to stabilize after three weeks of declines following an an initial jump late last month, according to Rebecca Chia, an analyst at data intelligence firm Kpler. China is slated to receive 870,000 tons of LNG in the week starting March 16, a 7% increase week-over-week, according to a Kpler forecast based on vessel data. However, it is still below the 1 million tons per week average for March last year.

Ten of 22 Chinese LNG import terminals haven’t received a cargo for at least 10 days, with the longest being the Shenzhen Diefu plant, which hasn’t accepted delivery since Feb. 6, according to ship-tracking data compiled by Bloomberg.

Heavy Metal

If copper is still a barometer for economic health thanks to its wide usage in construction and power transmission, the signals from China are not promising. Stockpiles monitored by the Shanghai Futures Exchange have risen close to a record, and they’re climbing elsewhere in Asia, too. In London, inventories have increased by more than 50% since the start of this year.

Copper traders say that demand is slowly picking up in China, but stockpiles may still grow further as they catch up with the collapse in manufacturing when swathes of the nation shut down to contain the virus. “Demand is gradually recovering but metals inventories still haven’t reached their turning point yet,” said Eric Liu, trading and research director at ASK Resource Ltd., a major copper trader. Liu and his fellow traders say they’re banking on economic stimulus from Beijing to revitalize the market in earnest.

Meanwhile, steel watchers are awaiting a decline in inventories that have ballooned amid the prolonged hiatus for construction and manufacturing. Total inventories for five major products climbed to a record 26.1 million tons by the end of last week.

Still, the rate of increase is slowing, spot steel prices are rising, and a decline will be seen as confirmation that a recovery of sorts is underway. “With activity levels starting to normalize and stimulus measures expected, inventories are under manageable levels in our view,” Citigroup Inc. said in a note.

Crushing Crushed

The nation’s soybean crushing industry is facing a rather different challenge from the virus.

Processing levels returned to normal by late February as the government prioritized the stability of the food industry, but traders say that crushers, who turn the beans into animal feed and edible oils, have been lowering their rates this month because of a shortage of imported beans.

Port constraints in Brazil, its biggest supplier, are hampering shipments and forcing customers in China to cut rates, according to the traders, who asked not to be identified because they’re not authorized to speak publicly. Weekly crushing volumes reached a normal level of about 1.8 million tons in late February, but dropped to about 1.4 million tons last week because of the constraints, according to the traders.

©2020 Bloomberg L.P.

With assistance from Bloomberg