“Beyond a potential short-covering rally, underlying demand will likely remain weak [until the] second half of 2010 and surpluses are forecast to increase across the complex for at least the next two years.” pdf
Cowed commodity markets began buzzing last week with a tantalising notion: China’s economic recovery is nigh, traders said, just look at the surge in freight rates and sudden burst of import demand.
Unfortunately for the bulls, the buying binge that started the Year of the Ox last week had more to do with speculative deals, inventory restocking, government buying and post-holiday catch-up than with the start of an upturn in the real economy.
“Not the beginning of the end,” Citigroup analyst Alan Heap called it in a recent note to clients.
“Beyond a potential short-covering rally, underlying demand will likely remain weak [until the] second half of 2010 and surpluses are forecast to increase across the complex for at least the next two years.”
Official figures are unlikely to be much help anytime soon, with this week’s trade and output data for January distorted by the Lunar New Year holidays, which last year fell in February.
Coming months will also be distorted by comparisons with last year, when winter storms and an earthquake hit industrial production.
Meanwhile, markets are focusing on short-term trade activity, including increased iron ore imports from Brazil, arbitrage crude from Russia, a rash of unusual rubber purchases and a spate of soya bean deals from Latin America to support the idea that the world’s fastest-growing commodity consumer is on the mend.
With the moribund world economy struggling to see a way out of recession, however, sceptics question whether export-focused China has found enough demand to revive its own fortunes.
And not all commodities were equally impressed. While copper price rose strongly, oil and grain markets were flat last week.
At least a portion of the latest spate of buying can be explained by importers and corporates re-stocking inventories that they had let dwindle as demand fell in recent months, or which declined over the lengthy Lunar New Year holiday.
Part of this demand comes from the government, which is taking advantage of low prices for oil, copper, aluminium, zinc, indium, rubber, fertiliser and sugar to build up reserves.
But these purchases - unlike China’s purchases of cotton, soybeans, corn and rice, which are meant to help farmers - are generally far too small to revive world prices, let alone demand.
How about the government’s 4 trillion yuan (HK$4.54 trillion) stimulus, an attempt to support economic growth, which slipped to 9 per cent last year after five consecutive years in double digits?
It includes 600 billion yuan for railway building this year and funds for construction and agricultural infrastructure, which most analysts say should benefit suppliers of cement and steel.
The Railways Ministry estimates its portion of the stimulus will raise demand for steel by 20 million tonnes this year.
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Increased commodity demand belies China’s economic recovery
Reuters in Beijing
11 February 2009
Cowed commodity markets began buzzing last week with a tantalising notion: China’s economic recovery is nigh, traders said, just look at the surge in freight rates and sudden burst of import demand.
Unfortunately for the bulls, the buying binge that started the Year of the Ox last week had more to do with speculative deals, inventory restocking, government buying and post-holiday catch-up than with the start of an upturn in the real economy.
“Not the beginning of the end,” Citigroup analyst Alan Heap called it in a recent note to clients.
“Beyond a potential short-covering rally, underlying demand will likely remain weak [until the] second half of 2010 and surpluses are forecast to increase across the complex for at least the next two years.”
Official figures are unlikely to be much help anytime soon, with this week’s trade and output data for January distorted by the Lunar New Year holidays, which last year fell in February.
Coming months will also be distorted by comparisons with last year, when winter storms and an earthquake hit industrial production.
Meanwhile, markets are focusing on short-term trade activity, including increased iron ore imports from Brazil, arbitrage crude from Russia, a rash of unusual rubber purchases and a spate of soya bean deals from Latin America to support the idea that the world’s fastest-growing commodity consumer is on the mend.
With the moribund world economy struggling to see a way out of recession, however, sceptics question whether export-focused China has found enough demand to revive its own fortunes.
And not all commodities were equally impressed. While copper price rose strongly, oil and grain markets were flat last week.
At least a portion of the latest spate of buying can be explained by importers and corporates re-stocking inventories that they had let dwindle as demand fell in recent months, or which declined over the lengthy Lunar New Year holiday.
Part of this demand comes from the government, which is taking advantage of low prices for oil, copper, aluminium, zinc, indium, rubber, fertiliser and sugar to build up reserves.
But these purchases - unlike China’s purchases of cotton, soybeans, corn and rice, which are meant to help farmers - are generally far too small to revive world prices, let alone demand.
How about the government’s 4 trillion yuan (HK$4.54 trillion) stimulus, an attempt to support economic growth, which slipped to 9 per cent last year after five consecutive years in double digits?
It includes 600 billion yuan for railway building this year and funds for construction and agricultural infrastructure, which most analysts say should benefit suppliers of cement and steel.
The Railways Ministry estimates its portion of the stimulus will raise demand for steel by 20 million tonnes this year.
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