Russell Russell: China's major imports show that price is still the main driver of prices for commodities imported from China.

China's May trade in commodities highlighted that price movements are the primary drivers of changes in flows.

The most eye-catching number from the Monday customs data is the fall in crude oil imports, which has fallen to an 8-year low of only 7.79 million barrels a day (bpd).

The war in Iran was blamed for the 29% drop in crude imports. Prior to the beginning of the conflict, on February 28, crude imports were at 11 million bpd.

As a result of the war, the Strait of Hormuz was effectively closed. This caused Middle East crude oil to rise sharply as 10 million barrels per day of supply were lost.

Brent futures, which peaked at $126.41 per barrel after the conflict, have since moderated to $91.45 a barrel.

The price of paper crude oil was much lower than the physical cargoes when China would have purchased crude for delivery in May.

Saudi Arabia, the largest crude oil exporter in the world, increased the premium on its main Arab Light grade for May-loading to a record of $19.50 per barrel, over the regional benchmark of Oman/Dubai. This reflected the tightness of the physical markets at the time, with the Strait of Hormuz closed.

Chinese refiners were forced to pay a substantial amount more for their May cargoes because the premium on physical crude was not limited to Saudi crude.

They chose not to pay and instead cut imports, turning to their large inventories that they had built up over the years at lower prices. There were also significant discounts on sanctioned crude oil from Russia, Iran, and Venezuela.

What will China's refiners now do that crude oil futures prices and premiums on physical cargoes are?easing? Will they increase imports and risk tightening markets, raising prices or continue to tap stockpiles of crude oil?

METAL MOVES

Metals trade is becoming more clear, despite the uncertainty surrounding the future moves of China's refiners.

Imports of unwrought metal fell 1.3% from April to 446 000 metric tons in May, due to high copper prices. Arrivals in the first five months of this year fell 7%, to 2.01 millions tons, from the same period last year.

London copper contracts closed at $13,615 per ton on February 28th, and have risen 9.6% this year.

China's aluminum producers, in contrast to the weak demand for copper have taken advantage of the higher price sparked by a loss of Middle East supply due to the Iran War by increasing exports.

China exported 632,000 tonnes of aluminum in May, the highest in the last year and up by 5.7% compared to the same month in 2020. Exports in the first five months of this year increased 10.4% to 2.69 million tonnes.

London aluminium futures closed at $3,547.50 per ton on Tuesday. They have gained 13% in value since the beginning of the Iran War.

Coal is another commodity that is influenced by price. China's coal imports dropped 8% in May compared to the same month last year. Arrivals for the first five month of the year fell 3.2%, to 182.62 millions tons.

On Tuesday, the?price for Indonesian thermal coal on Singapore Exchange with a 4,200-kilocalorie energy content per kilogram was $65.13 per ton.

The price of this grade has increased by 43% in the last year. This is largely due to the Iran War, which caused prices to rise as more Asian countries switched from natural gas to coal.

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These are the views of the columnist, who is also an author. Edwina Gibbs is responsible for the editing.

(source: Reuters)