China commodity hunger unsated; steel output slows

China's soaring industrial output translated into record demand for oil and record output of many metals and coal in November, but steel production suddenly slowed.

Official data on Friday show China is on course to cap a decade of robust economic growth with a year of unparalleled demand for raw materials and power, despite the economic crisis that has crippled consumption growth in its main export markets.

Oil demand jumped 20 percent in November from a year before, a Reuters calculation showed, as refiners processed more crude than in any previous month, pumping out gasoline and diesel to feed China's growing horde of motor vehicles and take advantage of the highest pump prices Chinese drivers have ever seen.

Except for crisis-hit 2008, China's refining runs have increased in every December since 2001, so next month's oil demand picture may point to a still stronger appetite for fuel, which some experts see continuing into 2010.

"Conservatively speaking, China's oil demand will grow by no less than 8 percent next year," said Qiu Xiaofeng, a Shanghai-based senior analyst from China Merchants Securities.

However the rise in demand was not reflected in China's production or imports of crude oil, which slipped 4 percent and 10 percent respectively from October.

That implies refiners tapped existing stocks of crude oil, the price of which clung close to $80 per barrel during November and has since fallen towards $70. And not all the refining activity reflected real demand, since fuel stocks at the two top oil firms grew 5.3 percent.

COPPER SURPRISES, STEEL STUTTERS

China's hunger for raw materials, bolstered by stimulus measures and direct government support, gave rise to huge imports of a wide range of commodities in 2009. But the rush to ship to China has slowed as markets elsewhere showed signs of picking up and China began to look oversupplied by imports and the gathering pace of its own production.

Indeed, its output of copper, aluminium, zinc, iron ore, magnesium and nickel all hit record monthly volumes in November, building on a strong showing in October.

The risk of oversupply was cited when China's rampant imports of copper suddenly slowed to a crawl in October, after seemingly defying gravity for several months. Many analysts had expected the volume of shipments, a crucial driver of the world copper market as well as a gauge of demand from Chinese builders and manufacturers, to show a similar lethargy in November.

But figures issued by China's Customs office on Friday contained a surprise: imports of unwrought copper, along with aluminium and zinc, bounced back modestly in November, with 290,158 tonnes of unwrought copper arriving in China.

A Reuters calculation based on preliminary figures showed refined copper demand may have risen about by about 35,000 tonnes, or 6 percent, after sliding 20 percent in October. Final import figures are not expected to be issued until Dec. 22.

Another sector plagued by oversupply fears, China's vast steel industry, stuttered in November. Crude steel output fell 8.7 percent from October to 47.26 million tonnes, although output of steel products inched up to the highest ever at 62.95 million tonnes.

And even that slower pace of crude steel output implies an annualised production of 575 million tonnes, 15 percent higher than in 2008.

A further crumb of comfort for steel firms came from China's exports of steel products, which have fallen 62 percent this year but rose 5 percent in November to within 3.4 percent of last November's exports.

POWER UP

Overall, commodity demand appeared in rude health. Industrial output surged 19.2 percent in November from a year earlier, picking up from 16.1 percent in October to achieve the fastest pace since June 2007.

That contributed to the fastest year-on-year growth in power generation in nearly 4 years. Thermal -- mainly coal-fired -- plants generated more power than in any previous month, up 7.7 percent from October, as nuclear and hydropower output slowed.

That power surge, supported by unexpectedly heavy snows, helped drive China's coal production to an all-time peak of 288.9 million tonnes, despite official pronouncements about slowing the growth of the world's biggest carbon footprint.

The weather caused gas shortages across China, prompting the government to ask energy suppliers to raise output. They did, and China's gas production hit a monthly record of 7.86 billion cubic metres, adding to growing supplies of liquefied natural gas and supporting the market ahead of the launch of a gas pipeline from Turkmenistan this month.

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