In recent weeks the Dalian and Zhengzhou commodity exchanges and the Shanghai Futures Exchange have all toughened trading requirements several times.
The measures imposed include raising trading margins, hiking transaction fees and imposing trading limits in attempt to tamp down speculative trading. Reuters’ Clyde Russell referred to the situation as China having “thrown the world’s commodity producers and traders a massive party.”
This year saw most analysts surprised by the strength of both China’s coal and iron ore imports, which led to rallies in the prices of both commodities. Chinese imports of iron ore jumped to the third-highest on record in November with 91.98 million metric tons up 13.8% from the previous month, taking the year-to-date gain to 9.2% compared with the same period in 2015, according to Reuters.
The coal import picture was even more robust in November. Coal imports of 26.97 mmt were the most in 18 months, and were more than double the imports recorded in November last year, according to preliminary Chinese customs data reported by Reuters. Coal imports have risen 22.7% in the first 11 months of 2016.
Steel Output… What Cuts?
Prices are increasing on the exchanges as many analysts didn’t really believe that China would cut its domestic coal output, but did believe that it would close excess steel capacity as it has repeatedly promised … and promised some more. Capacity is down, but actual production? Those cuts haven’t really materialized, either.
China seems to have made an effort to cut back on the excess steel exports but — as often happens with commodities — trying to curtail production didn’t have the desired effect. Before November, China’s coal output was down 10% year-on-year, and steel capacity was cut by close to the government target. This did not lead to a corresponding drop in steel production, which was up 1.1% in the first 11 months of the year. The remaining steelmakers simply picked up production.
A similar thing happened with coal. Authorities in Beijing have made their desire for increased domestic coal output cuts clear, but the miners have struggled to deliver on said output cuts because they, reasonably, are making more money off of the high prices.
China is the world’s largest consumer of commodities and the increases felt in the People’s Republic are felt globally in the supply chains of most products Americans and other nations’ citizens consume.
One longtime, U.S.-based sourcing professional who works with suppliers in China told MetalMiner that his company is seeing prices for raw materials it sources from there up 70% for zinc, its Chinese steel prices up 60%, packaging costs up 50% and plastic resins such as polypropylene up 30% this year.
Some of those increases have to do with rising oil prices and the November Chinese imports surge is seemingly hiking prices across the board. Imports of crude oil to China recovered strongly in November to 32.35 mmt, according to Reuters, the equivalent to about 7.87 million barrels per day, which is above the year-to-date average of 7.53 million bpd.
Crude oil imports to China are about 14% higher so far this year, which represents an increase of around 925,000 bpd. Chinese imports of copper also surged, rising 31% to 380,000 mt in November from the previous month, the highest since June and a recovery from October’s near two-year low.