China still hungry for metals
Brendan Ryan | Tue, 25 Aug 2009 17:10
miningmx.com
[miningmx.com] -- CHINESE imports of industrial commodities should slow in the second half of 2009, but there is likely to be increased demand through restocking in Western economies.
According to JP Morgan global metals analyst Michael Jansen, that outlook explains the present situation where metal prices have run well ahead of current economic fundamentals.
Speaking on a conference call on Wednesday, Jansen said: “Observers are correct when they point to a massive disconnect between commodity prices and economic fundamentals.
“What the various LME [London Metal Exchange] prices and other indicators reflect is that markets could get a move on in the second half of the year if we get some form of restocking in economies of the Western world.
“Any demand recovery will quickly test the market’s ability to supply the materials and the two obvious ones here are copper and nickel.
“The outlook for the next two to three months justifies the outperformance of commodity prices and we have a very bullish scenario for metals through the second half of the year into the first quarter of 2010,” he said.
Jing Ulrich, chairperson of China Equities and Commodities for JP Morgan, said the Chinese economy had bottomed out and the recovery was expected to gather pace over the next three to four quarters.
She said imports of commodities such as iron ore and coal had reached all-time monthly record levels in the first half of 2009. This was because of restocking and factors such as the closure of uneconomic domestic mines.
Iron ore imports in July reached a record 58.1 million tonnes (mt) after a number of domestic mines shut down because of a price drop. Iron ore inventories at Chinese ports rose 1.5% year-on-year (y/y) to reach 74.5mt in the second week of August.
Ulrich said domestic iron ore producers accounted for 57% of Chinese supply in the first half of 2009, compared with 64% in the first half of 2008.
She pointed out Chinese steel prices had corrected 6.6% from their highs in late July but demand for steel had improved across the vehicle, real estate and infrastructure sectors.
Chinese crude steel apparent consumption in July rose to 51.2mt, 36% above the average monthly level of 37.6mt for 2008.
The vehicle sector looked particularly strong. July car sales dipped 5% month-on-month, but y/y growth in sales for July jumped to 63% compared with 36.5% in May and 34% in April.
Vehicle sales from January to July in 2009 reached 7.2m units - 65.2% of the 2009 target set by the China Association of Automobile Manufacturers.
According to the JP Morgan report, domestic steel plate prices have increased 23.2% since mid-April because of the rise in car production volumes.
Ulrich said: “With the economy on track to achieve its growth targets, the government is placing greater emphasis on the quality of growth and the need to stimulate consumption.
“Recent conversations with companies in the Chinese building materials industries also point to strong demand conditions.
“Against this backdrop, China’s underlying demand for industrial commodities will remain robust, although imports of key metals are expected to slow relative to first- half 2009 levels, which were augmented by stockpiling and arbitrage buying.” |
