SHANGHAI (Reuters) - China’s imports of crude oil sank in July to a nine-month low and those of iron ore fell for the fourth time in five months as refineries and steel mills cut output due to slackening demand as growth in the world’s second-largest economy sputtered.
China is the top buyer of iron ore, coal and several industrial metals. Investors and miners around the world rely on Chinese appetite for imports to prop up commodities prices struggling with sluggish demand in the United States and Europe.
A surprise monthly rise of 6 percent in copper imports in July was the one bright spot amid broader signs from raw material demand that China’s economy was slowing swiftly. Trade data on Friday showed China’s total July exports grew a mere 1 percent - well below the consensus call for growth of 8.6 percent.
China would face a challenge in meeting its target of 10 percent growth in trade in the second half of the year, Vice Commerce Minister Gao Hucheng told reporters ahead of the trade data. The country’s factory output growth slowed unexpectedly in July to the weakest in more than three years.
China’s implied oil demand stood at its second-lowest this year, despite an annual rise of 0.9 percent to 9.15 million barrels per day, while average daily imports fell 3 percent from a month ago to hit a nine-month low.
The slowdown is hitting oil demand hard in the country that has driven the increase in global fuel consumption for a decade.
The International Energy Agency slashed its forecast for Chinese oil demand growth in 2012 by a third to 240,000 barrels per day (bpd) in its August monthly report on Friday. Just a month ago, the agency forecast growth of 360,000 bpd.
Reductions in steel output at mills that are struggling with high inventories as demand slows mean iron ore imports could fall further in the coming months, analysts said.
“I expect to see bigger declines in imports in August and September,” said Helen Lau, a senior analyst with broking house UOB-Kay Hian.
“We’ve already seen production cuts among steel companies and even the larger ones have scaled back output. More importantly, there are no signs of improvement in steel demand, so steel mills will probably keep inventory of iron ore low.”
Slowing Chinese demand has resulted in tumbling benchmark prices for steel, iron ore and coal.
“China’s economy is facing serious external headwinds ... I think demand for bulk commodities will stay poor for the rest of the year,” said a coal dealer at a large international trading house.
The bearish monthly data has boosted expectations for more policy easing by Beijing to shore up economic growth.
Analysts expect Beijing to cut interest rates in the third quarter and order two more cuts in the amount banks are required to hold as reserves by the end of the year.
“The timing of this will be critical. A deeper slowdown and policy lags might delay the turning point and resultant recovery expected in the second half,” Lachlan Shaw, commodities analyst the Commonwealth Bank of Australia, told clients in a note.
“The net impact on commodity prices will depend on whether new stimulus is timely enough to distract from a demand ‘pothole’ extending in the second half.”
Still, analysts said, any economic improvement will be fragile as the euro zone debt crisis and a sluggish U.S. recovery hold down global growth, the key factor that pushed China’s new export orders in July to their steepest fall in eight months.
Copper imports in July were 366,548 metric tons (404, 050), while those of iron ore dipped to 57.87million metric tons. Soy imports rose to a 25-month high of 5.87 million metric tons, up 4.4 percent on the month.
Additional reporting by China/Singapore/Australia C&E team; Editing by Simon Webb and Anthony Barker