China's trade in major commodities in May underscored that price moves are the primary driver of changes in flows in the world's biggest buyer of natural resources. The collapse in crude oil imports to an eight-year low of just 7.79 million barrels per day (bpd) sent shockwaves through the energy market.
The fallout from the war in Iran was blamed for the 29% slump in crude imports, with levels of around 11 million bpd common in the months prior to the start of the conflict on February 28. The war resulted in the effective closure of the Strait of Hormuz, which sent Middle East crude oil prices sharply higher.
Brent futures have since moderated from a post-conflict high of $126.41 a barrel to end at $91.45 on Tuesday. However, the price of paper oil was well below the price of physical cargoes at the time when China would have been buying crude for May delivery.
Saudi Arabia, the world's largest crude exporter, hiked the premium for its main Arab Light grade to a record high of $19.50 a barrel over the regional Oman/Dubai benchmark for May-loading cargoes.
The premium for physical crude extended beyond just Saudi crude, meaning that Chinese refiners faced paying substantially more for cargoes for May delivery. Instead of paying up, they chose to cut imports and turn to their vast inventories.
China's refiners have been building up their stockpiles in recent years when prices were lower and there were also substantial discounts on sanctioned crude from Russia, Iran, and Venezuela.
The question is what will China's refiners do now that prices for crude oil futures and premiums for physical cargoes have eased? Will they try to increase imports and risk tightening the market and raising prices, or will they continue to tap into stockpiles?
The trade in metals also showed a decline in copper imports, with arrivals dropping 1.3% in May from April to 446,000 metric tons.
China's aluminium producers have been taking advantage of higher prices sparked by the loss of Middle East supplies due to the Iran war by ramping up exports.
The impact of the Iran war on global energy markets is still being felt, with China's refiners facing significant challenges in securing affordable crude oil.
