China’s Metals Imports Reflect Growing Supply Disruption, Auto News, ET Auto

Major supplier countries such as Peru, Chile and the Philippines have suffered their own quarantines and restrictions in the fight against the coronavirus.

LONDON: China may be on its way to recovering from COVID-19, but its giant metallurgical industry faces the new challenge of sustaining global supply chains for raw materials.

Major supplier countries such as Peru, Chile and the Philippines have suffered their own quarantines and restrictions in the fight against the coronavirus.

China’s first-quarter trade figures reflect these mounting supply tensions, with declining import volumes of ores and concentrates and flows of scrap, a significant part of the raw material mix, in drying up.

In the case of copper and tin, the impact has started to translate into increased demand for imports of refined metals despite the sharp drop in domestic demand seen in the first three months of this year.

In the case of nickel, the pressure is partly offset by an ongoing shift in the type of raw material towards Chinese processors.

The initial shock in demand for COVID-19 metals appears to have passed in China. There may well be a second phase impact to come, but right now it’s the shock to global mining production that looms large in China’s metals trade figures.

Copper stresses and tin turbulence

Chinese imports of refined copper and tin both increased in the first quarter despite a drop in first-use demand as manufacturers cut back on activity due to the combination of the Lunar New Year holiday and movement restrictions to across the country.

Import volumes of refined copper increased 7% to 895,000 tonnes in January-March, the highest total for the first quarter since 2016.

Overflow shipments from 2019 and the build-up of some price-related inventory may well have been in the mix, but so have the constraints on imports of extracts and scrap.

Concentrate imports fell 1% in the first quarter, the first break in a strong upward trend since early 2015. China has built significantly more foundry capacity in recent years, increasing its calls for concentrates extracted from countries like Peru, where containment has taken a heavy toll on mining operators.

The problem of the Chinese copper sector is compounded by a simultaneous impact on scrap metal flows. These fell sharply in 2018 and 2019, as Beijing regularly tightened the purity thresholds on imported materials.

A reclassification of better quality scrap as a raw material is a big boost for imports.

But locked scrap collection chains in supplier countries are now limiting shipments. Imports of scrap copper fell a further 39% in the first quarter to 210,000 tonnes.

The production of scrap in China itself has been disrupted, causing headaches both for refineries who convert it back to refined metal and for manufacturers who use it in their blend of inputs.

With the availability of concentrates also disrupted, a shortage of scrap is one of the likely drivers of increased imports of refined metals.

China’s tin industry has been shaken by the country’s quarantine measures, and producers are now also facing squeeze in margins due to low prices.

The country removed an export tax in early 2018 and was a net exporter of refined materials that year and 2019.

However, it again became a net importer at 1,900 tonnes in January-March, suggesting persistent supply problems on the domestic market.

The reduction in the flow of raw materials from Myanmar is a permanent headache for several Chinese producers. Restrictions on movement across the border worsened what was already a steady decline in imports of tin concentrates from Myanmar.

Total imports of concentrates, most of which come from neighboring China, fell 20% last year and fell another 18% in the first quarter.

Decrease in nickel ore imports

Chinese imports of nickel ore and concentrates fell 19% in the first three months of 2020, with March’s tally of 1.6 million tonnes being the lowest monthly total in two years.

Imports of what is a basic raw material for Chinese nickel pig iron (NPI) producers have been affected by the combination of Indonesia’s export ban and the closure of several large miners in the Philippines. .

A gradual return to production is now on the horizon in the Philippines, but it could come too late to avoid a squeeze in ore availability.

Part of the mineral supply gap is filled by the increase in Chinese imports of NPI from Indonesia. This reflects both a continued relocation of Chinese production capacity from NPI and a domestic mining sector that has been relatively untouched by restrictions on coronaviruses.

Import volumes of NPI and conventional ferronickel more than doubled year on year to reach 800,000 tonnes.

Perhaps this is the reason why the disruption of the ore segment of the production chain has not yet translated into higher demand for imported refined nickel. Net imports in the first quarter were modest at 13,500 tonnes, down from 38,000 tonnes last year.

Lead and Zinc – Signs of Stress

China’s net imports of refined lead collapsed to just 900 tonnes in the first three months of the year, from 48,000 tonnes in the quarter of 2019. Those of refined zinc fell 51% to 68,000 tonnes.

Either way, that was to be expected given the pre-COVID-19 story of markets moving to a large commodity surplus after a period of scarcity.

However, things turn out slightly differently, with lead facing a combination of lower waste generation, a key part of the lead-acid battery production chain, and imports of weaker mined concentrates.

These were down 20% from the levels of the previous year to 265,000 tonnes of bulk weight. While not yet evident in terms of trade in refined metals, China’s main supply chain has tightened, with shares visible on the Shanghai Futures Exchange slipping to an 18-month low of 7,074 tonnes.

Zinc smelters performed well in the first quarter in terms of sustaining raw material flows, with zinc concentrate imports up 26% year-on-year to 1 million tonnes bulk weight.

How long these volumes can be maintained is a moot point.

Expectations of a massive oversupply in the zinc concentrate market are quickly revised as supplies in Latin America are constrained by continued mine cutbacks.

The impact on trade flows may have been limited so far, but the tightening of supply is increasingly visible in the zinc concentrate market, where spot processing costs have fallen to their highest. low level in one year, at $ 245 per tonne.

This year’s benchmarks of $ 299.75 per tonne, a 12-year high in foundry revenue, already appear to be slightly exceeded.

The annual agreement was negotiated in a context of abundant availability of concentrates. Analysts like CRU Group’s Dina Yu are now talking about the downsizing potential of Chinese smelters later this year.

The shift in market focus suggests that China’s global commodity import chains are likely to come under even more pressure in the coming months.

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