Last year was one of the most interesting in a decade for China’s trade in base metals with multiple records broken both for imports and exports.
The irony is that many key themes played out in the statistical darkness after China’s customs department suspended from March its traditional detailed monthly breakdown.
While some copper and aluminium insights could still be gleaned from customs’ continuing preliminary estimates, many other components of China’s metallic interaction with the rest of the world simply “disappeared”.
Partial light has since been restored thanks to the department’s new website and the forensic work of colleagues at Refinitiv.
Here are some of the stand-outs in terms of what the markets largely missed at the time.
ZINC’S BULL STORY PLAYS OUT
China imported 715,355 tonnes of refined zinc last year. That was the highest-ever amount and represented the second consecutive year of record imports.
The country’s net pull on the global zinc market over the last two years has totalled 1.35 million tonnes.
The only historical comparison for this sort of import appetite was 2009, when imports reached 670,000 tonnes.
It’s a distorted echo from the past, however.
Amid the unfolding global financial crisis, Beijing’s support operations for its beleaguered metal producers disrupted natural arbitrage patterns and sucked in lots of zinc which the country didn’t actually need at the time.
This time around China’s acute hunger for refined zinc represents the play-out of this market’s recent defining bull narrative.
Multiple mine closures and a resulting global raw materials supply crunch hit China’s smelters hard last year.
Antaike, the state metals research house, estimates national production of refined zinc slumped almost five percent to 4.53 million tonnes in what was the sharpest downturn since 2013.
Things should change this year. Analysts at Wood Mackenzie expect “a substantive rise in mine supply will outstrip the growth in refined production and (will) result in a concentrate surplus and the replenishment of previously depleted stocks of concentrate”. (“Zinc – things to look for in 2019”, Jan. 28, 2019)
Much, however, will depend on whether China’s zinc smelters can overcome margin compression and environmental pressures to process that raw materials surplus into metal.
LEAD – UNPRECEDENTED IMPORTS
China imported 128,000 tonnes of refined lead last year, bringing the cumulative total over 2017 and 2018 to 206,000 tonnes.
As with zinc, the only precedent for this scale of import action was the outlier year of the global financial crisis.
The country was actually a net exporter of refined lead over the 2013-2016 period and it was again briefly in the first half of last year before imports started accelerating from July onwards.
And as with zinc this is a story of global raw materials shortage and environmental crackdown within China.
Rising mine production of sister metal zinc should alleviate lead’s supply-chain tightness but Beijing is in no mood to lift the environmental pressure on its lead sector.
Indeed, Wood Mackenzie notes that any primary lead smelter failing to get its Discharge Permit this year will be shut down, while the smaller-scale secondary production sector will continue contracting. (“Lead – 5 things to look for in 2019”, Jan. 24, 2019).
ALUMINA – CHINA TO THE RESCUE
China has historically been a net importer of alumina, the intermediate raw material used to make primary aluminium.
Until last year the highest annual exports had been just 292,600 tonnes in 2015. That figure mushroomed to 1.46 million tonnes in 2018.
China’s huge exports of aluminium semi-fabricated products dismay producers in the rest of the world but no-one has been complaining about this alumina flow.
Indeed, China has effectively stepped in to plug a 3.2-million tonne supply gap left by the partial outage since February last year of the giant Alunorte alumina plant in Brazil.
That gap is expected to close this year.
Hydro received earlier this month approval from the state of Para to resume full operations. A federal court must follow suit before it can actually do so but Alunorte’s full return now looks a case of when not if.
TIN – RECORD EXPORTS BUT RAW MATERIALS CRUNCH LOOMS
China exported 6,078 tonnes of refined tin last year, flipping the country to net exporter for the first time since 2007.
The historical comparison is telling since a previous export stream of refined tin came to an abrupt halt at the start of 2008 with the imposition of a 10 percent export tax.
Since then the country has been a consistent net importer, or at least at the headline level since there have been periods when surplus metal has seeped into the international market under lesser-known trade codes.
Last year’s turnaround is confirmation that the export tax was very quietly dropped at the start of 2018. The move was unannounced and caught even Chinese players off guard.
It’s taken a time for trade flows to start adjusting as local producers look at the potential for tariff-free export shipments.
In principle, more might be expected to follow this year, given China is the world’s largest refined tin producer.
Whether internal supply dynamics will allow the country to continue exporting at this sort of rate, however, is a moot point.
China has become heavily reliant on raw material from neighbouring Myanmar in recent years, a previously unexpected bonanza that may be about to disappear.
Production and grades have been declining rapidly at the Myanmar mines, according to the International Tin Association (ITA). Stockpiles have been run down and old mines have been reworked to mitigate the trend but the slowdown is evident in a 25 percent slide in Chinese imports of tin concentrates last year.
Several Chinese producers reacted by taking maintenance downtime towards the end of 2018 with the ITA forecasting an 8 percent drop in national refined production over the year as a whole.
Until China’s own raw materials supply chain re-adjusts to reduced flows of concentrate from Myanmar, exports of refined metal are likely going to be capped at relatively modest levels.