London, 23 September 2011: Reuters

The breakdown of China's August metals trade revealed more about the country's shifting appetite for raw materials than for refined metal. Beleaguered bulls found something to cheer about in the acceleration of refined copper imports but the trend was already evident from the preliminary snapshot out earlier in the month.

Net imports did jump to 235,000 tonnes, their highest level this year. But the figure was still some 30,000 tonnes off the pace of August 2010, which was by no means a bumper month by comparison with the early months of last year.

Indications are that refined imports should remain robust going forward. But the "import" data offer no clues as to whether what is being imported is going to feed actual demand or merely accumulating in bonded warehouse in Shanghai. Both, remember, count as "imports".

Away from the copper headlines, China shifted to net importer of primary aluminium. Don't get too excited. Net imports were just 9,800 tonnes and somewhat overshadowed by the continuing bigger flow of alloy and products out of the country.

China's trade in refined lead, or what we can see of it, remained flat last month. Net imports of refined zinc at 23,400 tonnes were very much within the year's range. So too were net imports of refined nickel at 14,100 tonnes, despite expectations they would jump in August. Net refined tin imports were genuinely bullish. At 1,600 tonnes in August they were the highest in a year and will reinforce the perception China is returning to the import market after a period of de-stocking earlier this year.

But, by and large, the real step-changes in August imports took place below the refined metal headlines in the raw materials categories.

COPPER

The stand-out from last month's copper trade figures was the surge in imports of copper concentrates. At 675,900 tonnes (bulk weight, not metal contained) August's imports were the second-highest on record after the 683,500 tonnes imported in September 2010.

One month's figures do not a trend make, particularly when it comes to bulk raw materials, but the three-month moving average has recovered to the high levels seen over 2009 and early 2010. Higher imports of copper concentrates pose two questions of China copper bulls.

Firstly, they serve as a reminder that in Beijing's ideal world China would be self-sufficient at the refined metal stage of the supply chain, in effect shifting the country's strategic short position in the red metal to the raw materials stage.

Secondly, accelerated imports of copper concentrates beg the question of just how tight the concentrates market really is. Mine supply growth so far this year has been anaemic and supply disruptions still proliferate, most pertinently in the current strike at the Grasberg mine in Indonesia.

That didn't stop the Chinese smelters winning better treatment terms for the second half of this year. They rose to $90 per tonne and 9.00 cents per pound from around $72 and 7.2 cents in the first half of this year. The dramatic upwards shift in August imports may be a direct consequence of those better terms.

Time will tell but this part of China's copper trade will merit close scrutiny over the coming months.

ZINC/LEAD

Imports of zinc and lead concentrates also moved a gear higher in August. Those of zinc were 338,400 tonnes, their highest level since September 2010, while those of lead hit a seven month high of 141,300 tonnes. Again, these figures are bulk weight not metal contained.

There were one-off factors at work last month such as the eyebrow-raising 60,000 tonnes of zinc concentrate imported from Montenegro, not a featured supplier in the past.

But imports from traditional suppliers such as Australia (zinc) and Russia (lead) also swung sharply higher in August. This looks to be no more than a bounce-back from previously low import levels. Unlike copper, imports of both zinc and lead concentrates are still a long way from their historical highs.

However, they underline the fact that China is not short of smelter capacity for either metal and that it's real import requirement is not refined metal but raw materials to keep its smelters ticking over.

NICKEL

Nickel ore imports from both Indonesia and the Philippines hit fresh all-time records of 2.4 million and 2.9 million tonnes respectively last month. Not all of this flow is necessarily going into the production of nickel pig iron (NPI) as was once the case. A shift by some steel producers to use iron-rich nickel ore as a substitute for iron ore may be serving to inflate the country's appetite. But the accepted wisdom is that most of the nickel ore being imported is still destined for the booming nickel pig iron sector. Eventually at least.

Right now, strong imports seem to be joining the growing mountain of ore sitting at China's major ports. The domestic nickel market is in disarray with prices for nickel pig iron recently exceeding those for refined metal, a curious phenomenon which is apparently due to a pricing stand-off between ore suppliers and NPI producers.

The net result has been to open up arbitrage opportunities for refined metal, not that this has yet manifested itself in actual imports, which were pretty humdrum last month. That may change going forwards.

In the interim, China's hunger for nickel ore is another sign of the country's growing self-sufficiency, in this case of stainless steel inputs.

ALUMINA

China's imports of alumina, the intermediate raw material for production of primary aluminium, have slumped this year. And August's imports of 35,100 tonnes marked a new multi-year low. This suggests China is approaching equilibrium in terms of its ability to produce enough alumina to supply its massive smelter system.

Indeed, it is worth noting that exports of alumina, previously no more than a statistical footnote, are steadily increasing. They totalled 17,100 tonnes last month, the third highest total on record. The second-highest was in May and cumulative exports were up by 44 percent to 60,000 tonnes in the first eight months of 2011.

Worth noting is the new flow of alumina to Russia, 30,000 tonnes of it so far this year. It's a miniscule amount relative to the size of the global alumina market but the tonnage is high enough to suggest this is metallurgical-grade not chemical-grade material on the move.

Is it the start of a future trend? Is it possible that China could be starting to shift from net importer to net exporter of alumina? It would mark a tectonic shift but it's still a little too early to say.

What is evident right now, though, is that rising alumina production is requiring higher imports of bauxite, the mineral that sits at the start of the aluminium production trend.

Bauxite imports are running at record rates this year, up 46 percent over the January-August period, as China swaps one raw materials dependency for another.

Ends --

By Andy Home, Reuters market analyst – for Commodities Now.

The views expressed here are his own.