Surge in raw material imports 'positive'

China's commodity market may be on the brink of a recovery as the economy stabilizes and investment picks up, an economist said.

A solid increase in overall commodity imports in July suggests that investment is picking up, possibly helped by an official pivot toward rail investment, according to Alaistair Chan, an economist with Moody's Analytics.

"If this continues, producer prices could return to [showing] inflation by year end of the year.

"China's reform plans that will be announced in October could also include measures to liberalize energy markets, which may bring electricity and fuel costs in line with global benchmarks," said Chan.

There was a dramatic reversal in China's imports of crude and iron ore in July, with inbound shipments jumping from multi-month lows to record highs.

Imports of iron ore in July hit 73 million metric tons, up 14 percent month-on-month and up 26 percent year-on-year.

Average daily production of crude steel has reached 2.15 million metric tons so far this year, against 1.95 million tons in the same period last year. Increasing steel output may push up imports of iron ore during the rest of the year, a note from China International Capital Corp said.

Prices of non-ferrous metals have climbed as well. The copper price is up some 9.3 percent from its three-year-low set on June 24. Tin prices are near their strongest in four months. Lesser-traded commodities such as platinum and palladium also rallied in July.

The pace of wholesale deflation has slowed. Producer prices fell 2.3 percent year-on-year last month, compared with a 2.7 percent decline in June.

Prices fell 0.3 percent month-on-month, after a 0.6 percent decline in June, according to the National Bureau of Statistics.

Mining goods prices fell 6 percent year-on-year in July, recovering from an 8.5 percent drop in June.

"Producer prices remained in deflation in July, although there was some improvement compared with June.

"The steadily rising yuan has been keeping a lid on imported inflation, as has the general weakness in global commodity prices. Commodity prices appear to have bottomed. There may have been some recovery in prices as financial markets continued stabilizing in July after a spike in interbank rates in June," said Chan.

Analysts said increased raw materials shipments to China at this time, which is a traditionally slower period for demand, are going into rebuilding inventories that were drawn down in earlier months this year.