China’s imports of major commodities posted strong double-digit gains in February from a year earlier, official data showed, illustrating apparently vibrant demand even though underlying consumption has been weak.

In a sign that the world’s second-largest economy is slowing, strong imports in the first two months of the year have led to rising inventories. The price of industrial commodities, such as copper, iron ore and steel, have also steadily fallen through February, with the latter two slumping to their contract lows this week.

At the same time, headline trade data showed China’s exports in February tumbled 18.1 percent from a year earlier, raising questions about the health of the top commodity buyer despite officials blaming Lunar New Year holidays for the unexpected slide.

Analysts said the strong imports in the past two months were largely driven by temporary factors such as financing demand and stockbuilding, but credit conditions have eased significantly since January.

With underlying demand faltering on the back of an economic slowdown, China’s commodity import demand could shrivel up in coming months as end-users draw down swollen inventories.

“The risk is that the China commodity import feast may turn to famine quite soon,” Barclays Research said in a report.

Compared to a month ago, imports of crude oil, copper, iron ore and soy in February all fell from record highs struck the previous month, with analysts blaming seasonal distortions on the Lunar New Year holiday when factories close for extended periods.

Weak Demand

Crude oil imports in February rose 10.97 percent from a year earlier to 23.06 million tonnes, or 6.01 million barrels per day (bpd), according to Reuters calculations based on aggregated Jan-Feb figures given by the customs office.

Arrivals of unwrought copper, of which China is the world’s top buyer, rose 27.1 percent in February from a year ago to 379,000 tonnes. But imports were down about 30 percent.

“The fall was partly due to the holiday but the price differential (between imports and domestic prices) was also bad,” Wu Jianguo, an analyst at Maike Futures, said.

He added that Chinese buyers were currently having little appetite for spot copper imports because of low domestic prices , which have already dropped 10 percent this year.

Iron ore shipments rose 11.9 percent in February from a year earlier to 63.16 million tonnes, but tumbled 37.5 percent from the record high in January.

Soybean shipments stood at 4.81 million tonnes in February, up 65.8 percent from a year ago.

While arrivals would continue to rise in coming months due to big orders of Brazilian corn signed previously, analysts warned that sagging domestic consumption was already prompting crushers to cancel shipments.

“Domestic demand is not very good right now. Bird flu outbreaks have led to lower soybean sales, so crushers are facing growing soymeal stocks. More crushers have begun to shut their operations,” said Li Lifeng, an analyst with an industry portal,

Negative crushing margins have prompted buyers to cancel 245,000 tonnes of U.S. soybeans for delivery in the 2013/14 marketing year, according to the U.S. Department of Agriculture.

Recent economic data has been mixed, and the Lunar New Year holiday has made it harder to assess momentum. Weak investment and declining purchasers’ manufacturing index (PMI) readings have been countered by surprisingly buoyant exports and bank lending.

At the annual parliament meeting this week, China sent its strongest signal yet that its days of chasing breakneck economic growth were over, promising to wage war on pollution and reduce the pace of investment to a decade low as it pursues more sustainable expansion.

Premier Li Keqiang said China aimed to expand its economy by 7.5 percent this year, the highest among the world’s major powers, although the government also said that the target was flexible as long as enough jobs were created. (Reuters)