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15 January 2018

China purchased record volumes of natural gas last year as Beijing stepped up its war on pollution after decades of unchecked industrial growth.

Imports surged 27 per cent to 68.57m tonnes, according to customs data released on Friday, putting the country on track to overtake Japan as the world’s number one buyer of the ‘clean-burning’ fuel.

In a push to clean up its skies and reduce the smog that has choked its cities, China has been encouraging households and industry to switch from coal to less polluting gas-fired boilers. The shift triggered unprecedented demand for gas, which China’s storage and pipeline infrastructure could not handle.

As a result, Chinese utility companies were forced to turn to international markets, hoovering up cargoes of super-chilled liquefied natural gas. This in turn pushed prices in the region to the highest level in three years. On Friday, spot LNG in North Asia was up 1 per cent at $11.35 per million British thermal units

The gasification push has not been without its problems, however. Severe shortages forced factories across China’s industrial heartland to close or run at reduced capacity, while residents in some cities shivered in freezing temperatures.

Given Beijing’s determination to clean up its environment analysts say China could overtake Japan as soon as this year as the world’s biggest gas buyer. Japan imports around 84m tonnes of the fuel per year.

“Global growth has been exceeding expectations with 10 per cent growth in 2017,” said analysts Bernstein in a note report this week. “China is playing a key role given the switch from coal to gas in support of clean air policies.”

Friday’s customs data also showed China setting new records for imports of crude oil, soybeans and steel-making ingredient iron ore.

Crude shipments averaged 8.43m barrels a day, up 780,000 year-on-year, surpassing the US on an annual basis for the first time on record. Demand is expected to remain firm this given that China’s independent refineries – known as teapots – having secured their import licences.

“While the market has been concerned about this end of year softness, crude buying is coming back,” said Michal Meidan, Asia analyst at Energy Aspects.

Soybean imports jumped 14 per cent to a record 95.54m tonnes, while iron ore shipments rose 5 per cent to 1.07bn tonnes.

Under pressure to reduce emissions, China’s giant steel industry has been buying more high grade ore from miners in Australian and Brazil. Analysts reckons this flight to quality will persist, lifting profits at suppliers including BHP Billiton, Rio Tinto and Vale.

Raw materials have enjoyed a good start to year with the Bloomberg Commodities Spot index hitting a three year high.

Source: FINANCIAL TIMES