China can't save metals boom from US slowdown
Reuters, Thursday March 13 2008 By Polly Yam and Nick Trevethan
HONG KONG/SINGAPORE, March 13 (Reuters) - Chinese metal fabricators are starting to feel the pinch from a slowdown in U.S. export orders, indicating that internal demand from the Asian giant may not be able to sustain the metals price boom.
Auto part makers to tube manufacturers in China are reporting lacklustre order books going into the second half of the year. Together with efforts by Beijing to curb economic expansion, analysts fear that industrial commodities will be hit by a double whammy -- a U.S. recession and moderating growth in Asia.
"It's pretty obvious that if the external economy doesn't perform -- i.e. the United States -- then the internal economy is also going to suffer badly," said Jonathan Barratt, managing director of Commodity Broking Services.
Many analysts had said earlier this year that China was experiencing a temporary slowdown in demand brought on by record metal prices, bad weather and the Lunar New year holidays, and domestic consumption will pick up again.
But Barratt added: "It looks like we are heading towards a nightmare stagflation scenario and the crescendo could come around the Beijing Olympics."
China is the world's largest copper consumer, using an estimated 4.5 million tonnes of the metal a year, or about a quarter of global production.
A large part of that is used domestically as China develops its power infrastructure, but a lot also gets exported, contained in products from tubes and power cables to air-conditioners.
However, the country's copper imports fell 5 percent in February from the previous month, customs data earlier this week showed, and could slow even further in coming months.
An official at copper wire maker Tai-I Copper, a subsidiary of Tai-I International, said the firm was worried about lower export orders in the second half of this year, following a flat performance in the first two quarters from a year earlier.
But a purchasing manager at Golden Dragon, a major copper tube producer in China, said the company's exports, which run at 6,000 tonnes a month, half of which go to the United States, had not so far been affected by the slower pace in the U.S. economy.
"The big issue is whether this stable situation can continue in the second half?" he said.
Copper prices, up by a third this year to a record $8,820 a tonne last week have scared off Chinese consumers, leading to a doubling of stocks in warehouses monitored by the Shanghai Futures Exchange since early February.
INFLATION CONCERNS
Adding to fabricators' concerns is soaring domestic inflation -- running at an 11-year high -- and likely government attempts to cool rising prices, forcing analysts to trim growth forecasts.
Beijing plans to cut economic growth to 8 percent this year from 11.4 in 2007 which is also likely to weigh on consumption.
"If you are looking for China to take up the slack, you are asking a lot, especially as China wants to put on the brakes," said analyst William Adams at BaseMetals.com.
"China and Asia are going through an industrial revolution and that is bullish, but we may be cooling off from a hot bull trend to a warm trend. Overall, China will remain strong but not as a strong as we have become used to."
For the aluminium industry, the effect of the problems in the United States are already being felt.
Fabricators in Guangdong, an industrial heartland, say they have seen a 50 percent cut in orders for aluminium products ranging from window frames to computer and car parts from U.S. customers.
"The whole industry knows that U.S. orders in the second quarter have fallen by a half from a year ago," a manager at a aluminium product plant in Nanhai city said.
Some U.S. buyers had also asked for longer payment times in the first quarter or delayed deliveries, making many fabricators in Guangdong cautious about taking new orders, he said.
And it's not just analysts and exporters who are getting worried about the health of the world's largest economy.
Insurance premiums for shipments from China to the United States, to cover in case a buyer defaults, have risen to 1 percent now from about 0.75 percent in December, as underwriters price in growing risk, exporters said. Premiums for Europe at about half this level are stable, they said. |
