Commodities Comment:China growth plunges: easing more likely but when exactly?
Although a slowdown in China’s growth was widely expected, its Augustindustrial production (IP) growth still came as a shock, dropping to YoY 6.9%from 9% in July. This has obviously increased the likelihood of further policyeasing, as pointed out by our China economist Larry Hu (see here) but it’s notyet for sure policy actions will be taken immediately as it remains unclearwhether the loss of growth momentum has a temporary colour.
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Iron ore prices rebounded strongly on Monday with TSI reporting a 3.9%increase in the price of 62%Fe ore to $85.2/t. Data from Mysteel shows thatmills in China have been destocking since mid-July, with the mills surveyedreporting inventory falling to 21.8 days by the end of last week. This wassimilar to that reached in June when prices also rebounded, suggesting millshave come back to the market. However, with trader port inventory remaininghigh, the sustainability of any rally at present is somewhat questionable to us.
Thermal coal has recently been selling off on anticipation of a Chinese banon high ash, high sulphur coal imports. Those fears were only partly allayedon Monday when China’s NDRC published official regulation on coal qualitycontrols, effective 2015. The key points are: 1) For coal moved less than600km (which is almost all imported coal), the strictest quality requirement is amaximum of 30% ash and 1.5% sulphur, versus a draft proposal of 15% ashand 0.6% sulphur; 2) The quality restrictions are for both domestic andimported coal and 3) Sales and use of coal with ash >16% and sulphur >1%in the three major coal consuming regions of Beijing-Tianjin-Hebei Delta,Yangtze River Delta (inc. Shanghai, Jiangsu, Zhejiang) and the Pearl RiverDelta (inc. Guangdong) is to be restricted/limited. Given that the nationwidequality restrictions are not particularly restrictive, Cal-15 Newcastle swapssaw a small boost on the news. However, the stricter local controls remain aconcern, as it supplants the looser national limits for those important regions.
Chinese aluminium stocks last week rose for the first time since April. TotalSHFE stocks and unregistered stocks were 645kt, up 10kt WoW, according todata from SMM. This is consistent with our view that Chinese aluminiumstocks will rise in September given idled capacity restarts and new capacitykicking in. The rise in inventory was mainly driven by higher ingot shipmentsarriving at the Nanhai warehouse, which reported the largest growth in stocksof 12kt. Nevertheless we don’t expect a huge rise in stocks given the accidentat Xinfa smelter will reduce ingot supply to the spot market.
Mongolia’s vice-minister of mining announced on Monday that it had resolveda long-running tax dispute with Turquoise Hill Resources, operator of the OyuTolgoi copper-gold mine. The deal potentially paves the way for aresumption of development at the second phase OT Underground project,which was suspended last year due to the tax dispute.
Indian gold imports were (we calculate from valuation data released onMonday) 49t in August, up from July’s 43t but exactly in line with the 2014average so far. This is a solid figure, significantly higher than August 2013(17t) when the restrictions were beginning, and indeed higher than August2012, when imports were 48t, though not as high as August 2011’s 83t.
