China oil and metals trade robust

China's oil demand edged down in October but appetite for base metals slumped as the country's economic recovery proved more …

China's oil demand edged down in October but appetite for base metals slumped as the country's economic recovery proved more supportive of some sectors than others, customs data showed today.

Compared to October last year, both oil and metals demand seemed robust, since production has soared and imports are way above last year's levels, implying China has a strong appetite for commodities across the board. Apparent oil demand is up 10.3 per cent, while demand for refined copper has jumped 28.6 per cent.

China's economy has picked up over the course of the year, with third-quarter GDP growth rising to an annual 8.9 per cent from 7.9 per cent in the second quarter and 6.1 percent in the first, virtually assuring China of reaching its 8 per cent full-year target.

Last October saw the first real impact of the global economic crisis on China, so comparisons with 2008 are flattering, while comparisons with September 2009 are more telling.

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They show demand for oil inching down 2.3 percent in October but demand for copper plunging 19.9 per cent and demand for nickel -- used in stainless steel -- plummeting 37.1 per cent.

The slowdown, which also hit aluminium and zinc, reflects a big fall in China's imports during October, a sign of oversupply in China that many metals markets experts had already expected to see for several months.

The slackening of China's apparent demand is not entirely bad news for metals bulls: it also reflects a pick-up in China's exports, which have slumbered all year because of dormant economic activity elsewhere.

A global revival of confidence in steel production, for example, helped almost double China's nickel exports in October, with more than half going to South Korea. It may have also helped moderate China's runaway imports of coking coal, which fell back to 2.2 million tonnes after averaging 4.4 million in the previous four months, 8 times the average in 2007-2008.

Exports of zinc, also used in steel, rose almost 2.5 times, while refined copper exports jumped 73 per cent to 18,508 tonnes, more than 10 per cent of the imported volume of 169,374 tonnes.

But many in the metals markets are nervous about the size of China's stockpiles, since the country has taken delivery of record volumes of imported and domestically produced metal this year, and nobody thinks it has all been used up.

That leaves a question mark hanging over demand in the world's top consumer of base metals. A second, more threatening question is whether some of these stocks might come back onto the market, further eroding demand for imports.

But that uncertainty is not shared by the oil market: data obtained by Reuters shows that fuel stocks held by the top two oil firms, Sinopec and PetroChina, fell by 5 per cent in October, so real demand was stronger than suggested by trade figures and domestic production alone.

China's diesel and gasoline prices are higher than ever before, giving refiners an incentive to produce but eroding discretionary demand from China's growing army of drivers.

Although net exports of both fuel oil and diesel increased during the month, exports of gasoline -- needed by buyers of China's car production, which has soared this year -- fell.

Analysts said the low bases of late 2008 and early 2009 as well as China's consolidating economic recovery will help push oil demand in the world's second-largest oil-consuming nation into apparently rapid growth in the coming months.

Reuters